2 of 8

Write now Article Tools

Page 2 of 2

a pretty expensive exercise.

To fully understand the cost of your balance transfers you must take into account all of the fees, charges and the interest rate that the transfer will be subject to over the entire time until you reduce your credit card balance to zero.

Balance transfer credit cards often come with "convenient" cheques, that make it easy for you to transfer debts other than credit card balances to your new credit card. This is a great way to consolidate debts to allow you to work on an overall debt reduction plan. It may also be tempting to use these cheques to pay for rent or major purchases as time goes on, but make sure that you fully understand the terms attached to these cheques before you use them. Often they are subject to some hefty fees and may even have their own higher interest rate.

Once you have fully researched all of the balance transfer fees, it is essential that you get to grips with understanding how your ongoing use of the credit card will affect your existing balances and interest rates on this particular card. Some cards will require a minimum number of uses of the card over a billing cycle to keep those low rates active. Make sure you know how many times per month you have to use your card and if there is a minimum amount that you have to spend.

The best approach to maximizing the benefits of your balance transfer card is to spend as little as possible on your card after the initial transfer. There are a couple of main reasons for this. Firstly, the low balance transfer rate doesn't usually apply to new purchases. New purchases are usually subject to a very different, often substantially higher, rate. Secondly, as you make your monthly payments, they will be applied to reduce the balance that has the lowest interest rate first. This is usually your initial transferred balance. The new purchases, with the highest interest rate, will simply sit there accruing interest until all other funds have been cleared. This can turn your cheap low interest or zero interest rate card into an expensive proposition. For example, say you go out to dinner, spend

100 and charge it on your card. If your balance is still there after one year, your meal would have cost you 117. If you take longer to clear your balance, this figure will grow.

There is no doubt careful use of balance transfer cards can be a great way to manage the reduction of your overall debt. However, as with most tools they are most effective when used correctly by someone who understands their use and their limitations. The key is to read and fully understand the terms of the credit card. Dig deep into the fine print to get the full truth on how long interest rates apply, what they apply to and the conditions you have to fulfill to benefit from them. If you have existing balances on high interest cards, transferring them to a low rate card can help you speed up your eventual repayment and drastically reduce the overall cost.

Learn more about this author, Julie Wood.
Click here to send this author comments or questions.

• << previous page
• 1
• 2

Add your voice

Know something about Why a balance transfer card is not necessarily right for everyday spending?
We want to hear your view. Write now!