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Is a balance transfer card suitable for everyday purchases?

In a nutshell, no - unless you get one from the very few providers with positive payment allocation hierarchy.

*Balance Transfer Deals*

Have you ever wondered whether getting a credit card with 0% interest on balance transfers is a good idea?

In principle, it seems like a good deal: instead of paying whatever your current provider charges, you move your entire balance to a new card and pay no interest at all.

And in principle, it is a good deal: after all, if you have a large balance and are not going to pay it off any time soon, you will be saving substantial amounts of interest.

Is there a catch? You bet there is in fact, there are several.

No financial institution operates on a charity principle, and there are very good reasons why 0% interest balance transfer deals are profitable for the providers.

A balance transfer deal features low or zero rates. These rates are usually apply for a limited time (which also varies from 9 months to over three years) and after it expires, much higher interest rates kick in.

This is the first and most obvious danger: if you don't pay your balance off by the time the deal expires, you'll end up paying interest again it might be even more than your current card. Normal APR rates for the best balance transfer cards vary from 14.9% to 19.9% (although depending on your credit record you might be offered a higher rate).

If you think that there is a strong chance that it will take you longer to clear your debt, you might be better off with a long term non-zero rate than with a shorter term 0% deal. Capital One Low Rate Balance Transfer card offers 6.9% rate until 1 Jan 2012, with a normal APR of 15.9%.

Almost all the balance transfer deals include a fee: this is now usually around 2.5-3% of the amount transferred. Some cards with lower (but not zero) balance transfer offers don't have such a fee (e.g. Capital One Fixed Rate Card which offers 9.9% rate for over three years).

Depending on the amount you have to transfer and the time you need to pay the balance off, the fee might influence your choice of the best credit cards.

*Payment Allocation Hierarchy*

The biggest catch, and the main reason why most balance transfer cards should not be used for everyday purchases, is the negative payment allocation hierarchy.

Any repayments you make are applied to the cheapest debt first (i.e. to your 0% balance) and to the most expensive debt (e.g. cash advances or credit card cheques) last.

Effectively,

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