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Credit Card Balance Transfers Explained
What is a balance transfer ?
A balance transfer can be explained simply as a balance transfer!
When a balance is transferred usually from a credit card, but
possible from a bank account or loan to a credit card with a
offer interest rate (usually 0%) for a set period. It does not
have to be the entire amount. The card receiving the balance will
an interest rate for a set term, normally 6 months, but can be 9
months or even a year. Take a look at the current balance
transfer deals currently available. This will give you a
flavour of the typical kind of deal available.
Should I apply for a balance transfer ?
It is important to remember that a balance transfer does not
mean that the debt has gone away. It just means you are not
paying interest on it. You will still have to maintain
payments.
This may seem obvious but many people do not get this straight
in their mind.
The basic criteria for getting a balance transfer is when you
regularly have an outstanding balance after making your monthly
payments. This is the amount you should look to transfer to
another card. This will mean that for the period of the offer you
will pay no interest on the balance (provided you make the
minimum payments).
You should be very wary of taking up a balance transfer, if
your overall debt is increasing. A balance transfer is not a
green light to spend more money. The money you save should be
used to decrease your debt.
What should I look for in a balance transfer ?
You need to be aware of the following when looking for a
balance transfer card
Good things
- Length of offer period.
- Offer Interest Rate.
- The zero or low interest rate charged on the balance.
- Possible transfers from loans and overdrafts.
- On some cards you can transfer from existing loans and
overdrafts and still get the offer.
Bad things
- Cut-off period for the balance transfer offer.
- Hidden Charges on transfers.
- Some banks will charge a handling fee on the balance
transfer.
How long the offer is valid for ?
There is usually a cut off point from the account opening when
the offer is no longer valid. Be very aware of this otherwise you
could end up transferring a balance to a higher rate !!
What about new purchases ?
Unless there is also a 0% interest rate on new purchases then
you should avoid making new purchases on a balance transfer card.
This is because the banks will look to reduce the balance
transfer debt quicker than the new debt. Provided your credit
history is reasonable, there is nothing stopping you having
several cards for different purposes. A good way is to have a
card, which specialises in 0% on
new purchases and another card for balance transfers.
What happens when the balance transfer period finishes
?
When the balance transfer offer period finishes the debt will
revert to the typical variable APR. The lenders hope at this
point that the cardholder will retain the card and some of the
debt, so they can then start charging interest and making some
money! So take into consideration the low interest
rate credit cards. However, there is nothing stopping the
disciplined credit card holder from switching to another balance
transfer deal and closing the account. The cycle then starts
again. Always allow 6 weeks to 8 weeks before the end of the
offer period to apply for a new card. This means you can get the
balance transferred to the new card before the lender can start
charging the higher rate. You have to be organised to do this,
but if you are it does work. People who regularly switch balances
are know as card tarts.
The Golden Rules
There are three things to look out for with a balance transfer
card
- As mentioned previously, the unsuspecting can get caught
out when spending on a balance transfer card.
- Maintaining regular payments. If you miss a payment you
incur some penalty, so be aware. To be safe set up a direct
debit.
- The interest rate applied when the offer period
finishes.
Good luck with your choice.
Neil Brown is a freelance writer and regular contributor to
the credit card sites Choose A Credit Card and
Search4 Credit
Cards.
MORE RESOURCES:
Credit - Google News
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