Today’s post is provided by Les, who is a writer for moneysupermarket.com.
Credit cards come in many guises to entice new borrowers. However, with discipline and a good routine, one type of offer, the balance transfer, can be made to work in the users’ favor.
Simply, a balance transfer is where one can move the outstanding amount of one card to another card. Card issuers offer low rates of interest on these transfers.
These low rates of interest can vary from 0% upwards, but will only last for a limited period, typically 12 months. There is usually a fee associated with transferring balance.
This fee is a lump sum of the balance, often around 2 or 3 percent and one must read all the fine print and fully understand the terms and conditions before signing an agreement.
Before selecting a card, the consumer must come up with a plan to repay the outstanding debt. Ideally this debt should be repaid within the free/low interest period.
After the introductory period, the interest rate will most often return to the standard rate. A good way to avoid this high interest is to transfer to another card with another low rate.
It is important to remember that a person is limited to a certain number of credit cards and that if you change cards frequently it will affect your credit worthiness, which may prevent you getting another card.
Another thing to find out is the order in which your debts are repaid as many issuers will pay off the amounts with the lowest interest first.
This is fine if you only transfer a balance and have only one rate on your card. Nearly all cards have different rates for purchases and cash withdrawals.
These different rates are often higher than your balance transfer rate and this is how the issuers make their money. People use the card for transactions other than transfers, thereby accruing high interest charges.
Once a balance has been transferred, do not use that card for any other purchases. This is where discipline is needed, as there are often other sweeteners that entice you spend money.
Decide on an amount that you can afford each month and pay off your debts and if you need a credit card for purchases, then it is a good idea to have a separate card for this.
You must pay off the full amount of this separate card each month to avoid interest charges. Even if a small amount, for example $1.00, is not paid off, you may still pay all the interest on expenditure since your last payment.
Credit cards may have additional fees such as a yearly charge. There also may be a window period, sometimes three months, in which your transfers must occur.
Once the above has been planned and a card selected, then it is important to set a reminder as to when the free/low interest period runs out.
With careful management and planning it is possible to pay back your debts without accruing interest. A person must stick to the plan and not be tempted by the other offers of the issuer.
Thanks Les, for explaining the Balance Transfer details about credit cards.