Balance Transfer Cards Explained
March 16th, 2011
Balance transfer cards are available from most banks as a way to lure customers to their product.
They can be a bit confusing to understand and many customers wind up falling into a debt trap because they do not understand exactly how they work. They work by simply moving your balance from one card that has a high interest rate over to a new card with a lower interest rate. This process reduces the amount that it will cost for you to pay off your debt. Whilst it sounds pretty straightforward, you would be surprised to find out how many customers wind up in a debt trap with these cards.
How To Use Balance Transfer Credit Cards
Balance transfer credit cards are a great way to get out of deep card debt. Typically, the interest rate on most cards is fifteen to twenty percent. Imagine how much money you would save if you were to reduce that rate to zero percent for a few months. That would give you more money in your pocket to put toward clearing out the debt which would allow you to pay it off in full long before you could have without making the transfer. It basically gives you an interest reprieve so that you can focus on chipping away at the actual principle instead of using the bulk of your payment toward interest and fees.
As you would expect, there are some drawbacks to using these cards. The main issue is the allocation of payments clause that most credit cards operate under. This allows the card issuer to use all of your payment toward the debt that has the lowest interest rate first. In most cases, any purchases that you make will have a higher interest rate so they will not be paid until the full amount that you transferred is cleared off. This could put you right back into debt even while you are clearing out your old debt. The best bet is to avoid using this card for purchases until after the transfer is paid off.
If you are looking for a balance transfer card, you will need to find the offer that is best for you. This means figuring out how much time you will need to pay off your bill and finding an offer that fits into that time table. You should also look at the ongoing interest rate to make sure you are getting a card that will be valuable even after your debt is paid off.
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| Interest Rate (p.a.) | Balance Transfer Rate (p.a.) | Annual fee | Cash Advance Rate (p.a.) | ||
|---|---|---|---|---|---|
 HSBC Credit Card | 17.99% | 0% for 8 months with 2% handling fee | $0 | 21.99% |
|
 Virgin No Annual Fee Credit Card | 18.99% | 2.9% for 6 months | $0 | 20.99% |
|
 Bankwest Zero MasterCard | 0% for 6 months (reverts to 17.99% ) | 4.99% for 9 months | $0 | 18.99% |
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