Monday, March 7, 2011

Balance Transfer Tips


Balance transfers are a good money saving idea for anyone that has an outstanding balance on a high-interest credit card. By transferring the balance from an existing card onto one that has a lower interest rate or, ideally, offers 0 per cent interest for balance transfers, you can not only save yourself money in the short term but may even pay off the balance sooner than expected.

If you have a good credit rating then you may well be eligible for a credit card that offers zero per cent interest on balance transfers for a period of between six and 12 months. This means that you will have a period of time whereby you will be able to pay off that balance without being hindered by even more interest charges.

But there is a downside as many lenders now impose balance transfer fees, which normally range from between three and five per cent but could be even more as there is no limit on the amount they can charge. So if you are looking to transfer a balance always check to see what the fee is for balance transfers and factor this in to the total amount you will then have to repay.

You also need to be aware of the standard annual percentage rate (APR) of the card as your payments will rise dramatically if you have not paid off the outstanding balance by time the promotional period has ended. If you are not confident that you will have paid off the full balance by the end of the interest free period and the standard APR is a lot more than your current credit card then it may not be worth your while going down this route as, if you also include the balance transfer fee, you may end up actually paying more than if you just continued with your lower interest rate card.

It is also imperative that you meet at least the minimum payment each month and that you pay it on time as failing to do so will probably be a breach of the lender’s terms and conditions. If this is the case, and you do miss a payment, then you will most likely incur a late payment fee and lose the benefit of an interest fee period, meaning that the lender can automatically raise your level of interest to their standard annual rate. Furthermore, missing payments can have a negative affect on your credit score.

You also need to determine whether or not your new card has a zero per cent interest rate on new purchases and, if not, make sure that you do not start spending on the new card. The idea of taking out and interest free balance transfer credit card is to lower your debt levels and it is counterproductive to build up new debt as you are paying off the old debt!

And, when checking out the terms and conditions, make sure that the card does not have an application fee or an annual fee attached.

If you do decide to take out a new card and transfer the balance from an existing one then you must still honor the credit agreement you have with your existing lender and meet the minimum payment each month until the balance has been moved. Once again, failure to meet repayments can have a negative impact on your credit rating.

But follow the above advice and you should be able to successfully transfer your existing balance to an interest free credit card and make some real savings over the coming months.



Article written by Les Roberts, balance juggler and writer at Moneysupermarket.com.
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