Saving money with a special balance transfer rate for your credit card is very useful. There are certain things you need to be aware of in order to avoid being caught in the dreaded balance transfer trap!
We often often read that if we have an outstanding debt on our credit card, one the best ways of saving money on that debt is with a balance transfer. This is where you move all of your existing credit card debt over to a new card, but with a special balance transfer rate of interest.
The special low interest rate will allow you to pay off your debt without the added pressure of interest charges increasing the amount you owe. However there are things that you need to watch out for so that you do not end up caught in a balance transfer trap.
Balance Transfer Trap 1
Some people make the mistake of assuming their low/0% interest rate applies to purchases as well. Some credit cards do offer a promotional rate on purchases as well, however you must be sure that is the case before you go shopping otherwise you could be adding to your debt, as well as leaving yourself open for much higher interest charges on any new balance.
The best idea is to not spend any money on your new credit card as the whole point of the balance transfer rate is to help you pay off your debt faster and not add to it.
Balance Transfer Trap 2
Be 100% certain of how long your low balance transfer rate is valid. That way you can budget better, and pay the balance off before any interest is charged.
If you do not know when the low/no interest rate period ends then you could suddenly find yourself paying unnecessary interest payments.
Balance Transfer Trap 3
There is a a term know as “card whoring” which describes the practice of going from balance transfer deal to balance transfer deal. This gives customers a long term period of balance transfer rate. This is all well and good but there could come a time when you are refused in a card application.
This could leave you stuck on a high interest rate with a balance that you cannot move anymore. One of the main reasons this happens is that when people move their credit card debts they sometimes forget to cancel the old credit card. After they have moved their balance a few times this can leave them with 4-5 credit card accounts active which does not look great on a credit file.
Moving your balances around is a useful tactic, but be sure to cancel your old credit cards once the balance is cleared. You really want to avoid having any more than two credit card accounts running at any one time.
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Posted on Sunday, June 27th, 2010 at 1:48 pm
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