The credit card transfer season
As the coldest January for years starts to bite and the credit crunch is still in full swing, the financial forecast is pretty frosty for ordinary consumers. But a New Year can mean a new chance to take control and manage your money to your benefit, and taking advantage of credit card balance transfers could be one way to warm up your finances.
Although the number of enticing 0% offers has fallen because of the economic climate, there are still plenty of bargains to be had with some financial institutions even joining in the high street scramble for customers and offering ‘Sale Prices’ on their services. So the wise consumer can take advantage of an anxious market thats eager to please. There are still 0% offers out there, but the credit crunch has meant that they are harder to come by. Many credit card companies are only accepting people with good credit histories. So before you plan your 2009 finances, it is worthwhile checking that your credit record is up to date and that all the information held by the credit agencies is correct. If you have a poor credit history and are repeatedly turned down for credit cards this will compound your low rating and make it much harder to reapply for credit at a later date. Make sure your financial house is in order before you begin to think about changing cards.
There are a few things to remember before you apply for a credit card balance transfer offer. You will be required to pay a balance transfer fee, usually around 3% of the total amount transferred. Some cards have higher rates than others, so again it pays to search the market before deciding on your best option. Some credit cards have a minimum fee, regardless of how small the transfer. If you are only looking to transfer a small amount onto a new card, a minimum fee could make the process much more expensive than it needs to be.
Secondly, not all 0% balance transfer credit cards are interest free for purchases as well. This backs up the golden rule of credit card transfers ” never use the card for purchases as well as transfers. The amount you pay off each month on the new card will go to pay off the most recent transactions, rather than the initial balance transfer. So if you use the card for purchases as well you could find yourself running out of time to take advantage of the 0% offer on the initial transfer. It also means that you could end up paying interest on your transfer ” something you wanted to avoid doing in the first place.
Some cards offer a tempting combination of 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. In a direct reversal of the above scenario, with these cards once the 0% on purchases has run its course your payments go to the amount attracting the lowest interest rate first, namely your balance transfer. This is known as ‘negative payment hierarchy’ and results in the customer paying the full interest amount on purchases (usually a minimum of 18% on most cards) and costing more in the long run. To reiterate; the best advice is to have two cards ” one exclusively for your balance transfer and one for your purchases.
Once you’ve decided (wisely) to keep your cards separate, work out how much you can expect to pay each month and how much you will need to pay to clear off the balance transfer amount before the interest free period ends. Dont forget to factor in additional charges such as insurance (sometimes mandatory), any late payment fees and transfer fees. By taking active control over your finances, you may find the current economic storm much easier to weather. The financial market is subject, like any other marketplace, to greater consumer power these days, and as such a smart customer can take advantage of financial deals, even when the economic future looks somewhat bleak.
If you enjoyed this post, make sure you subscribe to my RSS feed!
