Related Credit Card Article

"A Quick Guide to Balance Transfers"

By admin | January 23rd, 2008 | Featured

In the ever more competitive world of credit cards, balance transfers are the most effective means of which to lure new customers. This is, of course, good news for consumers as, in a bid to win your custom, some companies are offering up to an incredible 12 months interest free on balance transfers as well as new purchases.

What is a balance transfer?

Simply put, transferring the balance form one or more credit cards to another, usually to take advantage of a special offer. The most popular cards at the moment offer a period of 0% interest on the balance you transfer, some even on new purchases for the same or shorter term. The other main reason for transferring is to take advantage of a low APR.

Advantages of 0% interest offer

Obviously, nobody wants to pay interest if they can help it, and transferring your balance to one of the many cards offering an interest free period is an attractive option, especially if your balance is quite large. 0% interest cards also provide an opportunity to consolidate debt from two or more cards on to one, providing the new lender will grant you the total amount in credit. If you manage to pay off the balance during the interest free period, you can potentially save hundreds of pounds a year. If you transfer again at the end of the interest free period, you can essentially avoid ever paying interest. As long as you don’t mind the hassle of jumping from card to card, this could be for you.

Disadvantages of 0% interest offer

After the end of the introductory period, the standard rate of interest tends to be quite high, around 15%. So, if you think it unlikely that you will remember to transfer the balance at the end of the interest free period, or you are more likely to use the lack of interest to spend and end up with a larger balance, this is probably not for you.

Alternatively..

If the hassle of switching every 6 to 12 months doesn’t appeal, then many lenders are now making much of the fact that they do not offer any introductory offers, but a low long term interest rate for the life of the balance transfer, until you’ve paid it off. Be aware, however, that on these cards the low interest rate applies to the balance transferred only and not new purchases, which will be subject to the full interest rate.

Balance Transfer Charges

There are now very little choice of credit cards with a 0% balance transfer offer which is actually ‘free’. Credit card companies are now implementing a balance transfer charge to cut the losses they are suffering due to rate tarts. This charge is normally 2% with a maximum charge of £50. If your balance is large enough then it may be possible to still make this worthwhile to save on interest charges and move your balance, but this charge will certainly make this life much more difficult.

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