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Saving Money with Balance Transfer Credit Cards
If you owe a large amount of money on an existing credit card and have a high APR, balance transfer offers can seem very appealing. Many credit card issuers will give you a great deal on APR if you move your balance (and business) to one of their cards. While these offers certainly have their good points, as with any financial decision make sure you read all of the small print and do not take the offer purely on face value. Balance transfers can certainly save money for many cardholders, but in some cases they can be a costly mistake.
There are many variations in the balance transfer deals available. Some credit card issuers place a ceiling limit on the amount the offer applies to - for example you will only receive the special rate for up to the amount of £5,000 on your balance transfer. There are some credit cards available which do not cap the amount and which offer an indefinite period to pay off the debt at the special rate, but the APR will most likely be slightly higher than those which specify a time limit. Some balance transfer offers even give you an introductory interest free period but these generally have the shortest time limits before the balance converts to the card's standard APR. Most of these deals mean that if you are looking to consolidate your debt, or are aspiring towards debt free living, a balance transfer credit card can be a shrewd choice.
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However, they are not a suitable option for all cardholders. If you are intending to make further purchases with your new card, a balance transfer credit card can be an expensive mistake in some cases. The special rate the card offers may only apply to the balance you have carried over. Any new purchases will accrue interest at the credit card's standard - and potentially much higher - APR.
Your monthly payments will be put towards clearing the initial balance first, while your newest purchases remain unpaid until this debt has been cleared in full. If you have used your new credit card to make several thousand dollars worth of purchases you will have a large sum of money incurring interest at a high rate, and the figures can add up rapidly. If the amount you initially transferred was also substantial - and you do not have the financial means to clear it quickly - then you will not be able to take action to clear your new, high interest, balance for a long time.
To avoid getting yourself into financial difficulty ensure that you have read the terms and conditions fully. Look at offers from other card issuers so you can compare their APR and make sure it is genuinely a good deal. Then find out exactly what the special interest rate applies to and how long it will last. There are some credit cards which give you an introductory period of low APR or 0% interest on both the balance transfer and any new purchases, but you will need to shop around to find these.
Finally, remember that your credit history may have some bearing on the number of deals a credit card issuer can offer you. A good credit rating will put you in a much stronger position for shopping around.
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