Choosing The Best Balance Transfer Credit Card
It is quite common for us to have more than one credit card at a time. The best of us manage our balances by keeping them as low as possible and those really clever ones amongst us use our card with the lowest rate for the bigger purchases. Some of us even manage to pay our balances in full every month meaning we never incur any interest charges. It would be great to belong to this sector of the credit using public but many of us aren’t. Sometimes these excellent ways of managing our credit cards are either not convenient or even possible.
If you have balances on one or more credit cards that is steadily increasing rather than reducing, one credit management solution available to you is the balance transfer card. It might seem a strange piece of advice to suggest a new credit card when you are facing the problem of increasing payments on your existing ones but amongst the very wide range of products available there are cards that offer a low rate balance transfer and many of the major banks now also issue zero balance transfer credit cards.
What are balance transfer credit cards?
Balance transfer credit cards were introduced for those users who still wish to carry a card balance but are looking to reduce the monthly interest payments incurred on their existing cards.
More cards, including those with 0 balance transfer offers, have been introduced to the market since the so called credit crunch as a way for the card issuers to increase custom without exponentially increasing risk. This has resulted in a fantastic array of offers for people with all levels of credit and all ranges of credit scores.
As with anything financial, you need to do your homework. Careful consideration of the options can make good financial sense and result in reduced monthly outgoings.
Try this step by step guide to choosing the best balance transfer credit card:
1. Be wary of tempting offers
Most people receive plenty of inviting offers through the post for credit cards with “exceptional” rates or notification of pre-approval. These offers are easy to reach for because they very often include such entreaties as a low rate balance transfer. Before taking up any offer that seems to be good to be true, do the research.
2. Check the term of the interest free period
Zero balance transfer credit cards are very inviting if you have been struggling with high monthly repayments thanks to high interest rates. One of the important things to check is how long the zero interest term runs for. Paying off the balance during the interest free period has huge advantage but if you can’t manage this, you could find that when the offer period ends, the interest rate is actually higher than you were paying on your original cards.
3. Compare fixed APR card deals
If your intention is to carry your balance but transfer it a lower interest rate, the best option could to opt for a credit card that offers a fixed APR balance transfer. Obviously, look for a card that offers a lower interest rate than your existing card. It’s worth shopping around as the rates can vary greatly from card to card. Also, cards with a low rate balance transfer may have other rewards meaning you can increase your overall credit package benefits.
4. Do the math
Before applying for any offer you need to calculate how worthwhile the offer is. It is important to work out how much interest you will save over the term of the offer. Remember it is very rare that any transfer you make is free, with charges ranging from 2 to 5% of the balance transferred. And of course, the transfer fee is added to the balance that will attract charges after the interest free period is over. If the offer you are reviewing is only three or six months interest free, the amount you save in interest may simply not be worth the effort.
5. Consider the impact on your credit history
Every time an application is made for credit your credit file is updated and your score recalculated. Do not be fooled into thinking that merely shifting balances between cards doesn’t have any impact on the record of your financial behaviour. Applications for new cards can adversely affect your credit in various ways:
A. Multiple applications simply look like poor credit management even if you are applying to take advantage of zero balance transfer credit cards.
B. Transferring to cards with lower balances means the amount owed then represents a greater percentage of the amount a card issuer might be prepared to lend you and,
C. Opening and closing cards too frequently doesn’t allow you to create a valuable long term, stable history.
6. Remember there are costs involved
One of the other major points of balance transfers and new cards is to consider the costs involved:
Annual Fee - there are cards that have a mandatory annual fee which may be waived as part of the low rate balance transfer offer. You need to check if this is a permanent waiver or time restricted; sometimes it is only applicable for the first year.
The Balance Transfer fee – It is imperative to check how much the balance transfer fee is and also remember it will be charged as one hit on the first statement you receive for your new card. Card issuers still have to make money from the transfer transaction and transfer fees commonly reach 5%.
7. Check the repayment terms
Reading the small print is a vital step in choosing between the various zero balance transfer credit cards. Most often there is once rate of interest for the balance you transfer and another for any subsequent use. The interest free or low interest period might also only apply to the balance transferred and you pay normal interest at the quoted rate on purchases. You will also find that generally, your payment is applied to the original balanced transferred, meaning the card issuer can charge you more interest because the higher rate is charged on more of your outstanding balance.
8. Optimise your transfer by choosing a card with rewards
If you are going to the trouble of changing cards, a low rate balance transfer offer should not be your only consideration. The competitive marketplace has resulted in cards that offer cash back, discounts on purchases, loyalty schemes, milestone bonuses and air miles. The card (s) you choose should maximise the rewards but maximising only comes to fruition if the benefits will be advantageous to you. It is pointless having a card that has a fabulous air miles reward scheme if you travel everywhere by train, for example. The rewards should also be balanced against the interest savings. The rewards of a card with a slightly higher interest rate may actually provide a better deal overall if you are a heavy user of credit cards or maybe, a frequent flyer.
Credit might seem a minefield and it’s understandable why some people are confused by the vast array of credit cards available, but there are plenty of user friendly websites that undertake comprehensive comparisons so with a little research, there’s every reason to believe there is a low rate balance transfer application with your name on.
