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Balance Transfer Credit Cards

What are balance transfer credit cards?

Balance transfer credit cards allow consumers to transfer existing debts to a new card. Credit card companies regularly offer introductory periods at a very low rate of interest (even 0%) allowing consumers to pay off their balance at a low servicing costs.

How are balance transfer credit cards useful?

For those seeking to lower their interest payments and clear their debts more affordably, balance transfers encourage the planning of monthly payments to clear debts during the 0% introductory period.

How do I benefit from a balance transfer credit card?

Most credit card providers offer low interest rates on balance transfers for between 6 and 12 months. Transferred debts will assume a very low interest rate for that period. Balance transfer credit cards can even be found without an annual fee.

What to watch out for with balance transfer credit cards:

While these cards are massively beneficial to those with existing debts, there are concessions to look out for. Once the low interest period expires, balances become subject to the providers’ standard interest rates, which are often above average.

These cards may offer a reduced number of interest free days, or none at all, which means that standard interest rates may apply on any purchases made.

Credit card companies always provide the terms and conditions of their cards when applying. Do ensure that you read and understand the documentation before complicating an application.

How do repayments work with balance transfer credit cards?

Credit card companies set a minimum monthly payment, which is the lowest amount that you are expected to pay each month. Failure to complete this payment will incur charges and could register negatively on your credit history.

Debts could take many years to clear at the minimum payment, especially accounting for interest charges. For example, a $2,000 card debt at a standard interest rate of 15.9% would take almost 30 years to clear at $5 per month. However, monthly payments of $100 would clear this debt in just two years.

When are balance transfers credit cards my best option?

Balance transfer credit cards are most suited to those with existing debts to clear.

The most effective use of a balance transfer credit card is to clear a debt completely before the introductory low interest period expires. Transferring $1,500 onto a new card that offered six months at 0% would prove most economical if payments of $250 were made each month to clear the debt without incurring any further interest.

There are some competitive credit card deals on the market, with no annual fee, 0% interest on balance transfers for several months, and low rates on purchases. Once debt free, you may wish to begin taking advantage of a low rate on spending with up to 55 interest free days.