If you’ve just opened a new account with a credit card company, making a balance transfer may well be one of your top priorities. More and more people are using this strategy to manage their debt, but before you get started you should understand the risks involved and the best ways to steer clear of them. To keep yourself safe from balance transfer disasters, follow these simple suggestions.
Why Balance Transfers Are Risky
Lenders are eager to meet the needs of consumers who are constantly on the lookout for more debt management solutions. This has led to a profusion of fresh offers for balance transfers that may not be as useful as they first appear! You need to protect yourself from potential transfer problems like these:
* Unexpected Interest Charges
* Surprise Fees
* Time Frame Changes
* New Provisions For Payment Allocations
* Annual Percentage Rate Variations
* Failed Transfers
Here are examples of what each of these problems may look like:
* Unexpected Interest Charges
Looking for a heavily-promoted zero percent rate on balance transfers, you decide to shift your debt off of a card with a 17 percent interest rate to one that you think will give you a zero percent rate for the next year. Your hope is to save yourself from a year’s worth of interest payments. When the first bill for your new card arrives, though, you discover that your whole balance – including the debt you transferred – is subject to an 18 percent APR.
* Surprise Fees
Say you opt for a better offer instead, transferring your debt to a new card that you have thoroughly verified will actually charge a zero percent rate on balance transfers. Eager to reduce your expenses, you transfer eight thousand dollars to the new account. According to the agent you speak with, there will be no transfer fee involved. Your next statement tells a different story! You’ve been charged a 3 percent transfer fee, meaning that moving your debt to your “interest-free” card has just cost you $240.
* Time Frame Changes
This is a particularly common and frustrating trap to run into. Say you’re hoping to take advantage of an interest-free one year grace period on your new card account. You shift $5,000 off of an existing card account that charges you 12 percent interest. For six months, everything seems to be running smoothly. The seventh month brings disappointment! Your grace period has ended sooner than you thought it would, and your new company is now charging you 18 percent interest on your balance.
* New Provisions for Payment Allocations
A credit card user who is transferring debt around is principally interested in two things – long-term debt maintenance, and day-to-day purchases. Many credit cards are set up to cater to these different purposes, offering different rates for each under certain circumstances.
You might open up such an account and transfer existing debt to it with the intention of holding that debt at a lower rate while using your monthly payments to pay off your day-to-day purchases, avoiding even more interest. When your statements start showing up, you see that the credit card company hasn’t used your payments the way you intended; you’re paying down your zero-interest balance while your newer balance is sitting still – and racking up more interest.
* Failed Transfers
This happens far more often than you might think. All you intend to do is move your money off of an old credit card which charges you a high interest rate onto a new one that offers significantly lower rates. You make arrangements for a balance transfer by speaking to your older company and hang up the phone happy with your new interest-lowering financial arrangements.
A new monthly statement arrives and you discover that your balance on the old card is unchanged! You speak to your new credit card company and only then do you discover that the balance transfer has failed and is, for whatever reason, impossible to complete.
You always need to bear in mind that you’re far from the only consumer who’s trying to manage debt by seeking lower interest rates and transferring balances. Lenders are quick to take advantage of unsuspecting customers who fail to check their promotional offers carefully; the disasters listed here are just some of the risks you face if you don’t do your homework.
What are the Rules?
You can make use of credit balance transfers as a way to repay debt legitimately. This is a method that is quite advantageous. This is mainly because most credit cards usually offer a 0% rate on any transfers made on credit balances. This rate ensures that on top of the original arrangement fee, there will be no further charges incurred so long as the debt amount is paid back or transferred to another account before the introductory period is over.
Another very vital importance of credit balance transfers is the fact that you have the ability to vary the amount of money that you have to pay each month so as to suit your personal budget. It would be advisable in this case to pay as much of the amount as you possibly can so that the debt reduces at an increased rate. However, during some months, you will have to pay less so as to stay afloat.
What’s the Best Plan?
Credit balance transfers are very convenient due to the fact that you get to prioritize your debts. As thus, those debts that have interest rates that are higher can be repaid first. Most credit card companies will offer a rate that is very low, sometimes as low as 0% so if you are unable to transfer your full debt to your card, you will have a chance to concentrate on those debts that more expensive first.
There are a variety of things that you have to put into consideration if you are intent on choosing to pay back a debt using a credit balance transfer. One of most important of these is that you should at least make the minimum payment on time to the credit card company. If you are unable to do so, you are likely to incur more charges and in the end you will probably lose your introductory rate thus making this kind of debt a very expensive one.
What Should I Prioritise?
You should always remember that it is vital you pay those debts are most expensive first. If you have extra forms of credit that are much more expensive as compared to others, it is advisable that you pay these debts first. This will as a result reduce the overall cost of your borrowing. Once you are done paying back the most expensive debts you can now move one to the less expensive debts until all of your debts are settled.
If you want to be successful in your credit balance transfers, you should always try to repay as much as you possibly can from your debt. Your introductory rate will not last you forever. The faster you can muster the money to pay back your debt, the sooner you will be at a luxury to forget your debt. As you make your payments, try not to spend too much using your credit card as this will just add to the amount you are to pay.
What Should I Look Out for?
While signing up for the card, ensure that you make note of the length of the introductory period. Once the period is almost over, you can look for another credit card where you will transfer any remaining balance to. Once you are done preparing a new credit card, you can now move your money from the old card to your new one and destroy your old card.
If you have multiple credit cards, you likely have one with a lower interest rate than another. Transferring your credit card balances, when done right, means that you have lower interest rates, and that saves you money each month.
Is Saving Money This Way Possible?
Don’t just jump into a credit card balance transfer. First, you need to look at how you specifically use your credit cards. You don’t want to fill up any credit or balance space you need to keep open or available for something else in your budget. Also make sure your regular budget can handle the projected new credit card payments due each month, and be mindful of potential fees. A number of credit card companies charge for balance transfers, but others don’t.
Always know the full terms and conditions of any potential transfer before you execute it, and analyze your budget for all possible implications. Keep in mind throughout all this that saving money is what you are trying to do.
Getting Ready For The Process
Transferring credit card balances can usually be done online in just a few quick moves. Usually you just have to provide your account specifics as well as the name of the bank you hope to transfer your balance to. You are likely to get asked how much to transfer, as transferring the entire balance is not automatic, nor even always possible. Be certain your new card has enough account room to absorb the transferred balance.
Keep checking your old card during and after a transfer, as outstanding transactions and automated or scheduled payments might still be pending that have yet to show up on a statement or balance sheet.
What Additional Advantages Do Balance Transfers Give?
The primary advantage you gain from a credit card balance transfer is the lower interest rate, but that is far from the only perk possible. If you are lucky enough to transfer every single credit card balance you have onto a single card, then you wind up with only a single payment every month. This is far more convenient than having multiple payments spread throughout the month.
If you choose to pursue a balance transfer, you are likely going to have a number of choices you can make. The first such choice is the possibility of a zero balance switch, where any transferred balance will have no additional interest charges after it is carried over. All other balance transfers have interest rates involved, as well as possible fees or charges. Any balance transfer has agreement paperwork or documentation associated with it. Read it thoroughly to know what you are getting yourself into.
Do Not Get Cocky
A credit card balance transfer, when done right, is a smart money management move that lets you shave your monthly bills and cut back on the interest you pay on your balances. So long as you have read and abided by the transfer terms and conditions, you might be sparing yourself up to thousands of dollars in long-term interest.
There is a danger here though. As you transfer balances off of higher interest cards, those accounts will have available credit again. Do not run those balances back up. Otherwise, you are completely undoing what you accomplished and winding up with even more credit card debt than before you started.
How Difficult is it?
As a result of the effects from the recent financial climate, most of us are searching for ways in which we can reduce the debts we have incurred and save money in the long run. If you are in search of a new credit card and you have some balances that you are yet to be paid on your previous credit cards, then it would do you good to search for a credit card that allows you to make balance transfers.
Generally, balance transfer entails making transfers of your debts from your old credit cards or store cards into a new credit card. The overall procedure is not a difficult one. All you have to do is provide the details of your previous cards and store cards to the provider of your new credit card. Your balances will then be transferred to your new credit card.
How Does it Work?
There are many benefits to making credit balance transfers. One of the most important one’s is the fact that you it can save you money and will therefore allow you to make your payments faster. However, in order to make the most of a credit balance transfer, you will have to find yourself a credit card that offers a 0% balance transfer rate. In other terms, this means that for a given period of time, you will not have to pay any interest on the balance you have transferred.
This does not mean that the monthly payments that you are liable for will be cheaper. You have to repay at least the minimum amount that your card provider has set for you. However, it means that the money will go into repaying your debt and not any interest incurred. You will get to pay back your debts quicker.
What Should I be Looking for?
When looking for a credit card for credit balance transfer, there are some things that you should look out for. First of all, you have to make sure that you choose a card that will offer you a long period for 0% balance transfer. A variety of credit card companies will offer different periods for 0% balance transfer. It is up to you to compare them and come up with the best fit for you.
It would also do you good to check to see what amount of fees you will be charged to transfer your credit card balances from your old card to your newly acquired card. Many providers will charge you a given percentage of the total transaction amount. As thus, you will need to compare these charges before you choose a new credit card else you will end up incurring unnecessary costs.
What is Your Management Plan?
Before you have picked out a card, you have to make sure that you have the ability to at least pay the minimum repayment amount each month. Making these payments is a lot like paying your bills. If you make a late payment, your credit card company might cancel the 0% interest balance arrangement that you have made.
It is also advisable that you have a good idea of the order that your credit card provider applies for payments made into your account. Most providers will use these payments you make to settle your transferred debts first. Therefore, if you purchase anything using your credit card during this period, you might end up making it quite expensive for yourself.