by Shaheen Darr

Created on: March 06, 2009   Last Updated: November 07, 2009

These days everyone is looking for ways to cut down on spending and one obvious way is to reduce the interest you pay on your credit card balances by doing a balance transfer to a cheaper credit card.

The high APR (Annual Percentage Rate) most credit card companies charge their customers varies from 15.9% and above, reflecting the stringent policy of lenders in extending unsecured credit to new borrowers. Whereas bank lending rates are at their lowest levels, credit card rates show no sign of coming down yet. The only way for credit card owners to remain prudent is to consider doing balance transfers to other cheaper credit cards to reduce the interest rate they are paying on existing credit cards.

The main reason why people opt for a balance transfer is to save on the interest charged every month on an outstanding balance. For the transfer to work in your favour, you have to ensure that the outstanding balance clears within the 0% introductory period. If the outstanding balance transferred is quite large this can mean having to increase your payment amounts in order to clear the balance quicker and within the specified period. If you only stick to paying the minimum amount, which is about 3% of the outstanding balance, before long, the introductory period will elapse and you will go back to paying the standard APR rate again. In other words, you will be back to square one.

Another point to note is that most credit card companies offer a 0% balance transfer for 12 - 15 months while offering a 0% interest charge on purchases for 6 months only. This benefit varies with different credit card companies and it is important to note this difference before you apply for the credit card. The nil interest rate on purchases seems quite attractive but it can mislead some people in increasing their spending because they feel they are benefiting from this interest free period. Before long spending can escalate and the 6-month interest free period ends, with the result that it is time to start paying the normal APR on any outstanding balance that they still owe.

The only way you can benefit from the 0% interest rate on purchases is by keeping spending to a minimum. If you do use your card for any purchases, pay off the balance before the 6-month introductory period is over, so as not to incur any interest charges. The best way is not to spend at all if you can help it, and to make additional payments to the minimum payment specified on the credit card in order to get rid

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