Should Your Small Business Play the Credit Card Transfer Scheme?

You are probably going to start seeing slews of new credit card offers hit your mailbox in the coming weeks. That’s because the government just approved amendments to regulations that were passed last year. The new rules become official on Oct. 1.

All week, I’ve seen stories about credit card balance transfer schemes, reducing credit card interest rates, and credit cards as an alternative to bank loans. Capital One announced card balance transfers with a 1 percent cash back reward. MBNA announced zero percent balance transfers. In a word, the next wave of credit card company battles for small business customers is on.

Perhaps one of the most helpful articles I saw on the credit card balance transfer scheme was in The Economic Times. The Times reports, “The key appeal lies in the lower interest rate charged by the institution offering the scheme. Suppose, you are paying an interest of 2.95% per month on your existing credit card's balance outstanding. If you decide to transfer this amount to another bank under a scheme that doesn't levy any interest for, say, three months, your savings could be huge if you manage to clear the dues within this period.”

But there are pitfalls to credit card balance transfer schemes. You need to read the fine print before you sign on the dotted line. The low-interest transfer may expire after 90 days and leave you with an even greater interest rate than you were paying to your previous credit card company. Sure, you could work the system by continuing to move your debt from one card to another, chipping away at bigger chunks of the balance due by taking advantage of the lower or no interest. But one little slip up could cost you. It’s a lot of work to work the system.

The ultimate goal is to use credit cards for the rewards they offer—whether that’s cash back on purchases or dinner gift certificates—and then pay them off at the end of the month. Dave Ramsey has excellent advice for using credit cards: don’t use them. “If you ‘have to’ use plastic, I suggest a debit card,” Ramsey says. “I use them for travel and the occasional convenience of ordering something over the Internet or phone. Other than that, I use cash.”

Check out this Ramsey radio clip on credit cards:



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