A teaching from moneyguru.com
In a nutshell, a balance transfer credit card lets you transfer credit or debt from an existing account or credit card to another. Read on… wisdom awaits.
What are they used for?
Balance transfer cards can be a wise choice for those who want help in managing their interest payments and debts. By transferring a balance from, say, a store credit card with a 18.9% APR to a low rate balance transfer credit card, you can cut your monthly interest repayments down to size; and hopefully, wipe the slate clean sooner.
Debts can be transferred from singular or multiple accounts, making this a flexible option for those stressing out over their repayment obligations. It’s a good idea to compare balance transfer credit cards to make sure you find the right deal for your needs. We can help you do this at moneyguru.com, but first, here’s a few things to meditate on.
The best thing about balance transfer cards
Some balance transfer credit card providers offer an introductory 0% as a sweetener, so if you want to reduce the amount you have to repay, shopping around for the most righteous deal makes a lot of sense. If you clear all your payments before the interest-free period expires, you could end up saving a shedload.
Let’s revisit our example from before. Say you transfer a balance of £2,000 from an account charging 18.9% APR. If your repayments are £100 a month, you could clear your balance in just 20 months. This could add up to a sweet saving of £340 with providers offering a 24-month interest-free limit, if you pay off the full balance in the offer period.
Balance transfer cards could also be a blessing for those necessary expenses such as car insurance. Instead of paying interest on your repayments, you could transfer the balance over, pay zero interest and feel delightfully smug. You could even pay off the whole lot in one go if you have the means.
Things to watch out for
There are a few golden rules to keep in mind when walking the balance transfer card path. Let us enlighten you.
Some balance transfer credit cards may very well charge a transfer fee, which is often around 2-3% of the amount of debt you’re transferring. It’s something to be aware of, but in the long run, you could still save more money that would otherwise be spent on a higher interest rate. As the Money Guru always says: compare and be aware.
Late payment penalties
Making late payments, missing payments or breaching your credit limit creates bad financial karma; not to mention penalties. If you don’t stay on top of your monthly repayments by paying at least the minimum amount, the provider could lose faith and start hiking up the interest rate. Or worse still, you might lose the low rate altogether.
Length of 0% offer
It’s also wise to keep one eye on how long your low interest or 0% balance transfer card offer lasts. Some cards will often have a time limit for the discounted rate of interest. Limits tend to start at six months, but some providers offer 24 or even 36-month interest-free repayment periods. After this, beware; rates can rocket to as much as 20%. This can hike up your monthly payments and quickly cancel out the benefits you’ve enjoyed. And that can really take the shine off things.
Compare and be aware
Balance transfer cards can be grouped into three main categories, depending on your needs. As a general rule, the most prized of cards are the ones with the longest period of 0% interest. Although these may come with a higher transfer fee, it will ease the worry of finding another product to satisfy your needs. Providers don’t offer these credit cards to just anyone, so you’ll need to have built up a good credit history first.
The second category is for those who aren’t comfortable with higher transfer fees, but still want a 0% deal for a reasonable amount of time. It’s pretty straightforward; you pay less in fees, but will have to find a new provider more often if you want to keep transferring your balance.
The third is long-term, low-rate balance transfer cards. This is for people who prefer a long, stable relationship with a balance transfer product. It lets you seek out products that often don’t have a transfer fee, meaning you can fulfill your monthly repayments easily.
With so many products out there, it pays to do your own research before making a decision. But if you want to make things really easy, let moneyguru.com guide you. Having the power to compare some of the best deals on the market means you can quickly find the right balance transfer card for your needs.