Compare Credit Cards
- Credit Cards Home
- Balance Transfer Rate
- Low Interest
- No Annual Fee
- Reward Credit Cards
- Business Credit Cards
- Gold & Platinum
- Debit Cards
Compare Banking
Compare Loans
Compare Insurance
- Insurance Home
- Health Insurance
- Home Insurance
- Life Insurance
- Motor & Bike Insurance
- Travel Insurance
Investment Providers
Links
Nine things To Know About Balance Transfers
The obvious solution for a borrower who has incurred a lot of debt on high interest credit cards is to transfer the balance to card which bears a lower interest rate. Though it sounds really simple there are certain things borrowers should be aware of, otherwise they may find they have replaced one Faustian deal with another.
1. Get A New Card To Pay Off The old.
Transferring a balance from a higher interest card to one which charges a lower interest is essentially paying of an existing credit card with a new one. The only real benefit of a balance transfer is if the borrower seeks to pay of the older debt at the new lower interest rate.
2. Consolidating Debt Simplifies Payments.
Balance transfers serve another important function, they enable and help borrowers consolidate debt which may be carried on multiple cards from various issuers on to a single card at a lower interest rate. Have a single or very few statements every month, with only a few payments being made enable consumers to maintain control over their credit utilisation, the proportion of their credit limit they are using, it enables them to rein in spending and keep closer control of finances if they are able to get an accurate picture because there are very few statements to look at.
3. Borrowers Can Transfer Other Kinds Of Debt.
Certain credit cards offer deals for balance transfers from different sources and not just other credit cards. Borrowers may be able to move car loans, loans for appliance and other monthly instalment balances on to a zero per cent balance transfer credit card. It is worth shopping around for cards at various issuers and finding cards that offer these kind of deals.
4. Fees Are Inevitable.
Borrowers should not expect that transferring a high interest loan to a zero per cent card will mean they are not immune from fees. Balance transfer cards almost always charge a balance transfer fee which is levied as a percentage of the total amount of debt being transferred. Therefore borrowers should calculate the cost of transferring any outstanding balances inclusive of fees and compare it to their interest rate fees should they continue to carry it on their existing card and make regular payments. In some cases it may not be worth doing it.
5. Transfer Rates Expire.
Zero per cent balance transfer cards seek to attract borrowers with low interest rates. These rates are introductory and do not last forever. Often they are only valid for between six to nine months. Once the introductory offer expires, interest rates can revert back to as high as the rate of the card that the balance was transferred from. If a borrower does undertake a balance transfer, they should seek to take as much advantage of the introductory interest rate as is possible and try and pay off their balance before the rate reverts to standard interest rates. If they fail to do so once the fee for transferring the balance has been included the whole exercise may end up costing them more in interest rates and fees than had they not undertaken the exercise to begin with.
Borrowers should also be aware that balance transfer deals can be lost altogether if they make the mistake of making a late payment.
6. Great Transfer Rates Do Not Apply To Everything.
Balance transfers usually apply only to the amount that is transferred to the new card, and does not mean that new purchases made with the balance transfer card will incur a zero per cent finance charge. A lot of cards though do offer interest free periods for new purchases, but in general balance transfer cards will not provide that kind of financing. Borrowers should read the fine print of their credit card contract to see whether there are rules which specify only transferred balances incur zero per cent interest, whilst newer purchases incur interest at the regular rate.
It is helpful to keep a different card just for new purchases, one on which no balance is transferred or carried and offers attractive interest free periods. Some balance transfer cards do offer introductory interest rates for new purchases, but the borrower needs to have checked the fine print to have made sure, this is the case, and they should know how long the introductory periods are valid.
7. Borrowers Do Not Always Have Power Over How Their Payments Are Allocated.
Borrowers should not expect to be able to make payments to their higher interest debt. Some card issuers have a negative payment hierarchy policy, which means that the oldest debt gets paid off first, so if a borrower makes a purchase on a balance transfer card, and has existing debt which incurs zero per cent interest, whilst the new purchase incurs say a 109 per cent interest rate. Then any payment made on the card, goes towards paying of the interest free balance first rather than the interest bearing purchase. This is known as negative payment hierarchy and borrowers should strive to be aware whether the issuer has this kind of policy.
Having to separate cards from different issuers for new spending and carrying balances at zero or low interest rates is an easy way to avoid this problem.
8. Borrowers Should Not Expect To Transfer Again and Again.
Borrowers who think they can continue transferring balances and maintain high debt levels perpetually at low interest rates will be disappointed. Lenders tend to take negative views of borrowers who consistently carry high debt levels. Lenders taking a negative view means that the consumers ability to borrow can become limited.
Also such behaviour can in certain cases have a negative effect on credit scores.
9. Borrowers Must Have Good Credit To Qualify.
Zero interest balance transfer cards were once widely available. In the wake of the global banking crisis and rising default rates all over the developed world, they are now harder to come by and usually available only to those with good or excellent credit. If you can qualify, and if it’ll save you significant cash or help you pay off your debt sooner, it might be the way to go.
Related posts
Comments
Leave a Reply
