How Does `For Life` Balance Transfer Credit Cards Work?

August 7th, 2010

Life of balance transfer credit cards are excellent for getting rid of your debts, as long as you check out the fine print and stick to the rules.

OK, here’s the plan. You get a new credit card, you admire it for a few minutes and then you lock it away so you can’t get at it.

Sounds like a crazy plan, right? Well, not if you’re going to get the most out of your new life of balance transfer credit card.

So how do life of balance transfer credit cards work? They operate in much the same way as balance transfer credit cards, with the crucial difference being that the low interest rate being charged on that credit card will apply to the balance you’ve transferred in for as long as that debt lasts.

This is unlike other transfer cards that offer a low rate, but only for a limited time.

So why should you wonder: how do life of balance transfer credit cards work? when it’s obviously a lifetime loan and you shouldn’t have to worry about it ever again.

Unfortunately, it’s not that simple. Certainly, the debt you transferred in from other credit cards can be repaid at the low rate initially offered, but if you continue to use your new card for purchases and cash transactions, all those things will attract an interest rate which may be well into double digit territory.

Consequently, you’ll be paying off low interest debt while simultaneously racking up much higher interest debt. It’s the old one step forward, three steps back tango leaving you well behind where you started out.

A Practical Example

Here’s a practical example: you have $5000 debt transferred in from other cards which you’re repaying at 4% interest, plus $2000 in purchases at 14% and $1000 in cash from an ATM with 20% interest. You might want to pay off the 20% debt first.

But every repayment you make will first go to the transferred debt until it’s completely paid off. If that takes a while, the 14% and 20% debt will remain, running up your interest bill like crazy.

Long Term Debt Management

If you still wondering ‘how do life of balance transfer credit cards work?’ think of them as a long-term debt management programme, not as a new form of credit card. After you’ve locked your shiny new credit card away, you should take a long, hard look at your budget, your spending habits and what needs to be changed to make sure you stay on the path of financial rectitude.

Check out more lifetime balance transfer deals.