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.
Tempting 0% offers on credit cards have been noticeable by their absence this year as credit card companies tighten their belts in anticipation of another lean year. But they are out there, with some banks even joining in the frenzy to tempt wary high street customers into their branches with 'Sales' on financial services, including balance transfer credit cards. The smart consumer can take advantage of this desire to please by the credit card companies and snap up a bargain on balance transfers. Many credit card companies are now reducing their exposure in the marketplace by only accepting customers with very good credit histories. Any small blip on your record could stop your chances of taking advantage of the few 0% offers that are available, so a worthy New Years resolution might be to check your credit history records. If there are any discrepancies on your record (even something as insignificant as an incorrect postcode) they could affect your ability to gain credit. By checking that all your details are correct and up to date, you have a far better chance of taking advantage of the offers that are available.
If your credit history is all in order, there are still a few things to think about before choosing a balance transfer card. Firstly, a transfer fee is usually required to move an outstanding credit card balance onto a new card. This fee is normally around 3% of the total transferred, but some cards do have a minimum fee no matter how small the transferred amount. You will need to include this amount in your calculations of exactly how much transferring to another card will cost.
Not all 0% balance transfer credit cards offer interest free terms on purchases as well. This is where the golden rule of credit card balance transfers comes into force " never use the card for purchases as well. Keep it exclusively for balance transfers. The amount you pay each month will go to pay off the most recent transactions first, rather than your initial balance transfer. This means that you could end up running out of time on the 0% offer, with your monthly payments going to clear off recent purchases when they could be shrinking the size of your balance transfer instead. This could undermine the whole point of taking out a balance transfer card in the first place, as you may start paying interest before the debt is cleared.
Some cards do offer dual functions " 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. However, once the purchases deal runs its course, you may discover that the payments you make go to pay off the balance transfer, rather than the interest on outstanding purchases. This is known as 'negative payment hierarchy', with payments being used to clear the balances attracting the lowest interest rate first (the remaining time on your 0% balance transfer) and not your recent purchases. This could result in customers paying the full interest charge on purchases (usually around 18% but some can be much higher). It's the polar opposite of the previous conundrum, but still reinforces the adage " keep your balance transfers and your purchases on separate cards.
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.
Tempting 0% offers on credit cards have been noticeable by their absence this year as credit card companies tighten their belts in anticipation of another lean year. But they are out there, with some banks even joining in the frenzy to tempt wary high street customers into their branches with 'Sales' on financial services, including balance transfer credit cards. The smart consumer can take advantage of this desire to please by the credit card companies and snap up a bargain on balance transfers. Many credit card companies are now reducing their exposure in the marketplace by only accepting customers with very good credit histories. Any small blip on your record could stop your chances of taking advantage of the few 0% offers that are available, so a worthy New Years resolution might be to check your credit history records. If there are any discrepancies on your record (even something as insignificant as an incorrect postcode) they could affect your ability to gain credit. By checking that all your details are correct and up to date, you have a far better chance of taking advantage of the offers that are available.
If your credit history is all in order, there are still a few things to think about before choosing a balance transfer card. Firstly, a transfer fee is usually required to move an outstanding credit card balance onto a new card. This fee is normally around 3% of the total transferred, but some cards do have a minimum fee no matter how small the transferred amount. You will need to include this amount in your calculations of exactly how much transferring to another card will cost.
Not all 0% balance transfer credit cards offer interest free terms on purchases as well. This is where the golden rule of credit card balance transfers comes into force " never use the card for purchases as well. Keep it exclusively for balance transfers. The amount you pay each month will go to pay off the most recent transactions first, rather than your initial balance transfer. This means that you could end up running out of time on the 0% offer, with your monthly payments going to clear off recent purchases when they could be shrinking the size of your balance transfer instead. This could undermine the whole point of taking out a balance transfer card in the first place, as you may start paying interest before the debt is cleared.
Some cards do offer dual functions " 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. However, once the purchases deal runs its course, you may discover that the payments you make go to pay off the balance transfer, rather than the interest on outstanding purchases. This is known as 'negative payment hierarchy', with payments being used to clear the balances attracting the lowest interest rate first (the remaining time on your 0% balance transfer) and not your recent purchases. This could result in customers paying the full interest charge on purchases (usually around 18% but some can be much higher). It's the polar opposite of the previous conundrum, but still reinforces the adage " keep your balance transfers and your purchases on separate cards.
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.
About the Author:
Financial writer James Noon writes for various popular financial-based websites. He specialises in breaking down financial jargon for the regular consumer. You can find out more about credit card balance transfer here.
posted by Credit Counseling at
12:45 PM
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