Balance Transfers… Balance Transfers… Balance Transfers!!! These infamous means to clearing up your credit card debts is a double edged sword that could work for or against you. Here are the most common balance transfer mistakes and how you can avoid them.
Monthly Payments & Purchase APR
Just so you now we highly recommend against charging a credit card you intend using to clear your balance. You would find after combing through the very small fine print text that as regards how monthly payments are applied the industry norm is lower interest balances take preeminence over the higher interest balances. So let’s say you transfer $15,000 to a new credit card offering a 12 month 0% intro rate. You didn’t bother to check the Purchase APR (or for any intro rate that applies to purchases) but after one month you’ve managed to get a $3,000 purchase balance with a 22% purchase APR applicable. You then step up to pay in little installments of $150 hoping you’d somehow clear this balance in 12 months. The truth is by that time your intro rate would have expired and you’ll probably have accumulated much more than $3,000 in interest rate charges. All payments you made were applied to the $15,000 balance transfer (since it was the lower rate) ensuring the initial $3,000 purchase balance still remains. This doesn’t take into consideration the numerous late fees or other charges you might have raked up along the way.
The bottom line is if you have a balance exceeding $5,000 and intend paying that off as soon as possible, go for a card that offers a long term 0% intro rate and charges a low purchase APR. Do not charge anything to this card and keep your credit line strictly for emergency purposes. If you intend charging and paying off the balance make sure you read and understand the fine print (or card agreement). Find a line that explicitly states which transactions have priority with regards to your monthly payments. If the higher interest transactions are attended to first then you’re in luck, otherwise you just might as well forget charging purchases to that card.
For the purpose of clearing up all balances in good time, we recommend that if you indeed charge payments to a credit card, you should make a monthly payment that’s above your purchase balance – this way some part of your balance transfer balance gets cleared.
Standard APR after the Intro Offer
The average intro offer lasts usually anywhere from 3 to 12 months and a standard APR takes effect after the initial period. If you intend paying your balance in tiny bits with a balance still likely after the intro offer expires, you should plan to start incurring interest rates on transferred balances. The funny thing when scouting for credit cards is if you don’t look well enough, you might get carried away by frivolous benefits while paying little attention to those things that affect your finance in the long run.
Balance Transfer Transaction Fees
The balance transfer transaction fee typically ranges from 0% to 5%. These fees are applied to balances transferred from other credit cards whether or not they’re conducted during the intro period. As you should already know, it pays to go for credit cards having very low or even no balance transfer fees. If you intend transferring let’s say, $10,000 to a card charging 5%. You’ll have an additional $500 to cope with. Some credit card companies classify that $500 as a purchase transaction, so be careful here.
If you can’t find a credit card offering zero transaction fees, there are a lot of credit cards that place a cap on how high the balance transfer fee can go. Find these credit cards and take advantage.
Balance Transfer Credit Card Offers
- United States Balance Transfer Cards
- Australian Balance Transfer Credit Cards
- Canadian Balance Transfer Credit Cards
- United Kingdom Balance Transfer Cards
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