Balance Transfer Credit Cards for Bad Credit

Credit card companies allow consumers to pay only the minimum balance on their card and carry forward the remaining balance to the ensuing month. It goes without saying that, the cardholder is charged interest on the remaining balance. In other words, credit cards have a revolving structure and are similar to home equity lines of credit (HELOC).

Understanding Balance Transfer Credit Cards for Bad Credit

Balance transfer credit cards made it possible for a cardholder to transfer balances from high interest (APR or annual percentage rate) cards to 0% introductory APR cards. This in turn gave the cardholder the chance to reduce the debt burden since the money, that was paid in lieu of interest, could be used to reduce the balance on the new credit card. Credit card companies allowed this practice on account of the following reasons:

• Credit card companies could charge a balance transfer fee for allowing the cardholders the privilege of transferring the balance to a low or zero percent APR card.
• Low or no interest rate feature was not permanent and it eventually made way for higher interest rates.
• If consumers had balances that bore different interest rates, payments in excess of the minimum amount could be applied first to the balance with the lowest interest rate.
• Interest rates could be hiked by the credit card company without giving prior notice to the consumer.
• The credit card company could apply the principle of universal default and increase the APR on the credit card if the consumer defaulted on other payments.

It's evident that allowing credit cards for balance transfers (for bad credit consumers) benefited the credit card companies in more ways than one. However, today consumers cannot hope to procure balance transfer credit cards, for reducing credit card debt, with the same ease because of the following reasons.

Are Balance Transfer Credit Cards Still an Option?

Credit Cardholders' Bill of Rights was signed onto law in May 2009. Although, most changes will be enforced from 22 February 2010, the first provision of this law came into force on August 20, 2009. The new credit card law has curtailed the freedom of credit card companies in more ways than one.

• As per the new law promotional offers, like low or 0% APR that encourage balance transfers, have to last for a minimum period of 6 months.
• Excess payment made by the consumer have to be applied towards balances with higher interest rates prior to reducing balances that carry a relatively low rate of interest.
• The principle of universal default is no longer applicable.
• The credit card company has to give 45-day notice before hiking the interest rate on the card.
• Consumers have the right to opt out of increases (stop using their cards), on account of an interest rate hike provided the hike was not triggered due to the following reasons: The consumers delayed payment, that was due, by more than 60 days or the card was a variable rate credit card.

Since, credit card companies can no longer increase the rate of interest on the cards, they may end up offering balance transfer cards with zero/low APR only to consumers with good credit rating. They may also increase the set-up fees and the annual fees for people with bad credit. This is because credit worthiness and absence of annual fee go hand in hand. Thus, it's evident that the new law will usher in an era when balance transfer credit cards for bad credit consumers will become a rarity.