Balance transfer cards may be a new word for some, but this type of credit card is becoming more popular. This is because of the initial interest rates charged on transfers from other cards. This article will further explain what these cards are.
A balance transfer credit card is just what the name implies. It is a credit card that is used to transfer balances from other credit cards. What makes these cards so appealing is that they offer low interest rates for a period of six, nine or twelve months. This means you can transfer high interest card balances to the balance transfer card and pay them off quicker, as you have 0% or very low interest rates of up to 2.99%. In that way, all or most of your payments go towards reducing the balance rather than paying interest.
A balance transfer credit card may seem to be the answer to all of your problems. However, you must read the fine print on the application. Make sure that you understand how long the favourable interest rates last, and what revert rates will be charged after the introductory period is over. Remember, if you put any purchases on the balance transfer card, you will most likely be charged the normal interest rate for these, rather than the balance transfer rate.
Also be aware that any balances left from your balance transfers at the end of the introductory period will begin accruing interest at the normal rate. That makes it necessary to be aware of what the normal interest rate of the card is; for the same reason you should also try to pay your transferred balances off before this period is over.
If you are disciplined, you can save yourself a lot of money in interest charges. A $2500 balance at 13.99% will cost an average of $30 per month in interest. If you are paying the minimum payment each month, only about half of the payment goes towards reducing the balance, and the other half towards interest. However, if you have a balance transfer card with 0% interest, and you pay $50 per month, that full amount goes towards balance reduction. After six months, you will have paid your balance down by $300 rather than the $120 on your old card, due to the interest on it.
The aim on the balance transfer card is to pay the entire balance during the no or low interest period. If you know it will take you twelve months to do this, the best thing to do is to shop around for a zero interest, twelve month period card. In that way you will have a longer period in which to pay off all balances at the favourable rate.
If you do take out a balance transfer card, make a commitment to yourself to pay this off during the allotted time. As soon as the balance on this card is paid off, destroy the card, so that you will not use it again. This way you remove the temptation of getting back in debt and having to repeat the process.
Related posts:
- Why balance Transfer debt?
- Best Credit Card Balance Transfer For Life Offers
- How to do a good balance transfer
Posted on Friday, June 25th, 2010 at 4:28 pm
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