A low interest rate balance transfer credit card is just one way that you can get control over your credit card balances.
Balance transfer credit cards come in many shapes and sizes, so before you apply for a new balance transfer credit card, consider which type of card will best suit you and help you to repay your outstanding credit card debt as quickly and easily as possible. Deciding to apply for a balance transfer credit card is just the first step on the road to becoming more financially responsible, but you also need to make sure you have the right tools with you as you set out, so you can avoid situations which have tripped you up in the past, and make sure that every dollar you earn is working hard you.
Consider the top benefits of low interest balance transfer credit cards:
- You can stop paying high interest on your balance.
- You can have up to 18 months to repay your balance transfer.
- You can close down a high interest credit card that wasn’t working for you.
- Your interest charges will be less each month and you have the opportunity to get out of bad debt.
Features Of Low Balance Transfer Credit Cards
It is important to consider how the features of a low interest rate balance transfer credit card differ from those of other balance transfer offers. Don’t assume that all balance transfer credit cards offer the same basic features because you can be caught out by your new balance transfer credit card, and find yourself in another negative credit card relationship. Instead, make sure you know and understand all of the features of a low interest rate balance transfer credit card, so you can get the most out of your new card. Common features of a low balance transfer credit card include:
- Balances must be transferred from another provider’s card. To take advantage of a balance transfer offer you need to be comparing the offers on credit cards from different providers to the card you have now. You can’t apply for a low interest rate balance transfer credit card to repay a credit card balance where both cards will be from the same provider. This is because balance transfer offers are a way for credit card providers to poach new customers from their competitors with low interest offers. The provider’s hope is that at the end of the offer period you won’t bother to transfer to a new balance transfer or ordinary credit card, but will stay with them.
- Allow you to consolidate your debt. A lower balance transfer credit card will allow you to transfer balances from a number of credit cards and store cards so that you have just one monthly credit card repayment to make and one low interest rate. In consolidating your credit card debt you are saving money in interest charges, as well is making your monthly bill paying easier to manage.
- More time to repay your balance. Where a 0% balance transfer credit card offer may only give you around six months to repay your balance a low interest rate balance transfer credit card offer can last up to a year and give you more time to pay your balance down to zero.
- A much lower interest rate than your standard credit card. You can save hundreds or even thousands of dollars in just one year by transferring your balance from a high interest standard credit card, to lower interest balance transfer credit card. In some cases the interest charges can make up more than half of your monthly credit card repayment on a standard credit card, however on a low interest rate balance transfer credit card you will be paying a fraction of that interest so you save on each monthly repayment, as well is save in the long term because you will repay your balance faster and so you won’t be paying interest for as long.
- The interest rate and term can vary between providers. Each balance transfer credit card provider will create the balance transfer offer which they think will best entice you to their card, and which their own business model can easily service. Therefore it pays to shop around for the best low interest rate and balance transfer term because rates can vary from one to 2% up to 5 or 6%, where you may find a low interest rate balance transfer offer for as little as six months to as long as 18 months.
- A lower interest rate balance transfer offer will end. This is what sets this offer apart from a for life balance transfer offer because while you can shop around for the longest low interest rate balance transfer offer, it will still expire. Therefore if you think you will need more than a year to repay your transferred balances then a for life balance transfer credit card may better suit you because you will qualify for the low interest rate for as long as it takes you to repay your balance, and while the interest rates offered on for life balance transfer cards are slightly higher, they are still much lower than the standard purchase rate your balance transfer offer can revert to at the end of the term.
- Payments will be allocated to the oldest balance first. Most Australian credit card providers will use the payment hierarchy to allocate your monthly payments to your outstanding balances. This means that the oldest balances or purchases will be repaid first, and on a standard credit card this may not have much of an effect on you, but on balance transfer credit card you can mean that if you make new purchases on your card those purchases will attract high interest, while you are still working to try and repay your transferred balance.
- You will have more time than a 0% offer and less interest than for life offer. This is an important factor to consider in your comparisons to make sure you are getting the best deal on a low interest rate balance transfer card. It can help you decide whether a low rate balance transfer card is right for you or whether you could benefit from paying zero interest over a shorter period of time, all paying slightly more interest to avoid any rush.
How To Compare Low Interest Balance Transfers
As you now know low interest balance transfers are just one type of balance transfer credit card, so you need to make sure you are making informed comparisons to ensure you choose the best low interest balance transfer credit card for you. As you start to compare low interest balance transfers, make sure you:
- Look for the lowest rate. While you are paying lower interest than you were on your standard credit card low interest balance transfer rate can still add up. Therefore make sure you compare to find the best rate on offer so you know you are making genuine savings.
- Choose the longest offer period. You are paying more than you would on a 0% balance transfer credit card, for the luxury of more time therefore make sure you are getting as much extra time as possible on a low rate balance transfer card.
- Consider your balance transfer needs. Before you apply for a low balance transfer credit card you will need to look carefully at your budget so you can know how long you need to repay your balance in full with the money you can spare from your weekly wages. The balance amount you are transferring and the number of cards you are transferring from can also affect the type of balance transfer card you need because as you consolidate your debts you may gain need more time to repay that higher combined balance. Knowing how long it will take you to repay your transferred balance can help you accurately choose a balance transfer offer term which will mean comfortable repayments without having to worry about the revert rate.
- Look for fixed low interest rate balance transfer offers. With official interest rates still on the rise Australian credit card providers are likely to see this as free rein to raise their interest rates in the future as well. Therefore if you are considering a low balance transfer credit card offer which will usually be for less than a year look for a fixed interest rate on your offer as this can protect you from these rises which your credit card provider may see fit to pass on to their other customers. However with a fixed rate you can be sure your balance transfer will earn the same low rate for the entire offer period.
- Compare annual fees. The annual fee on a credit card is usually paid at the beginning of the year upon application. Therefore even if you manage to repay your transferred balance in less than a year you have still paid a fee for the entire year. Therefore if you don’t intend to keep your balance transfer card as your standard card once your balance is repaid shop around for the lowest annual fee you can find as this can save you hundreds of dollars.
- Compare the term of your low rate against 0% balance transfers. There can often be very competitive 0% balance transfer offer is available, therefore before you apply through a low rate balance transfer check whether there is a comparable term available on 0% card as you can enjoy the same amount of time to repay your balance and instead of paying low interest you will be paying no interest.
How To Use A Low Balance Transfer Credit Card
A balance transfer credit card is not an everyday financial product so you need to know exactly how to use it so the banks don’t trick you into losing control of yet another credit card. Instead find out more about how you should be using your balance transfer card, and more importantly how you shouldn’t be. Use a low interest rate balance transfer credit card:
- If you have outstanding credit card debt. Some people will use a 0% balance transfer credit card as a short-term loan to deposit funds into a high interest savings account rather than use those funds to repay an outstanding credit card balance; in this way they transfer the funds back to their balance transfer credit card before the end of the offer and keep the interest earned in their savings account. However a low interest-rate balance transfer credit card is best kept for repaying credit card debt because you are still paying interest and you risk making a loss if your high interest savings account doesn’t deliver.
- For more focused repayments. With a shorter period of time than for life balance transfer offer, a low balance transfer credit card can help you focus your repayments and clear your debt faster. You know you’re on a deadline and you know exactly when the offer will expire so you can budget to repay your balance within that period, as well as transfer any additional funds to your transferred balance as well.
- Transfer your balance as soon as possible. Some low balance transfer credit cards will require that you transfer your balance within a certain time frame to qualify for the balance transfer offer, this timeframe can be as little as 30 days to as long as three months but you don’t want to find that you have missed the balance transfer window issues you will then be stuck with just another credit card tempting you to spend.
- Stop paying high interest as soon as possible. If you can make your balance transfer in your credit card application or as soon as possible after using the forms are sent by your credit card provider. In this way you can avoid the high interest charges from your standard credit card sooner, and enjoy the full promotional period of your balance transfer offer to repay your balance at a lower interest rate.
- Have a separate credit card for new purchases. This brings us back to the payment hierarchy used by Australian credit card providers to allocate your monthly repayments. If you make a purchase on your balance transfer credit card it will not be repaid until you have paid off your transferred balance in full, this means it was sit there on your card accruing interest and mocking you as you try and repay your transferred balance at a lower interest rate. The savings you are making on your transferred balance are being eaten away by the new interest charges on your new purchases. Instead use a separate credit card if you still need to make credit card purchases during your balance transfer period.
- Choose the best to separate purchase credit card. If you are going to be making credit card purchases during your balance transfer period make sure you choose the best purchase credit card or your needs. You want to avoid getting into the same situation again of needing a balance transfer because your credit card debt has gone out of control. Therefore look for a credit card with a low purchase interest rate and a long interest-free period so you have more time and more opportunity and more space in your budget to repay your new purchases before they get out of control.
- Have a debit card for cash withdrawals. It rarely makes sense to make cash advance on your credit card and especially not on your balance transfer credit card because of the effects of payment hierarchy. Therefore to avoid high cash advance interest rates which are often not eligible for interest-free periods either, only make cash withdrawals from a debit card which accesses your own money in your cheque or savings account. Not having to repay cash advances on your credit card can help you maintain control over your repayments.
- You still need to make monthly repayments. A balance transfer credit card is still a credit card at the end of the day and needs to be paid off. Therefore just because the balance transfer credit card has taken over the balance from another credit card doesn’t mean you don’t need to pay that balance every month. Your balance transfer credit card provider will send your monthly statement and tell you the minimum amount you need to pay. Make sure not to miss a payment as this can often jeopardise your low interest rate offer.
How To Maximise The Benefits Of A Low Balance Transfer Credit Card
While a balance transfer credit card will benefit you the most if you are sure to never make new purchases on your card, there are ways to reap even more rewards from your choice of low interest rate balance transfer credit card to make repaying your debt faster and easier. To get the most benefit out of your low-interest balance transfer:
- Budget to repay your balance as soon as possible. Even though you are being charged a much lower rate of interest than you were on your standard card, you are still being charged interest. Therefore if you’re able to repay your balance before the end of the offer period, or as soon as possible, you can make even more savings.
- Make a realistic budget. While you may think you have budgeted to repay your balance within the low interest transfer period if you have allocated unrealistic amounts or cut back in places you can’t actually make any savings being your budget will blow out and your balance won’t be repaid in time. As a result you will be charged the revert rate on your balance which can often be the cash advance rate of the credit card. Instead you would be much better off creating a realistic budget for a worst-case scenario timeline of when you can repay your balance, and when extra funds are available you can divert them to your balance transfer and paid off sooner.
- Shop around for the best deal. Credit cards are a competitive industry and there will always be a balance transfer offer on special. Therefore take the time to find the lowest interest rate and the longest period to suit your balance and your needs and budget, because often once you make a balance transfer to a balance transfer credit card rate and term will be fixed for you.
A balance transfer credit card is a great way for you to take control of an outstanding credit card balance and stop it from controlling you. However to ensure you get the best out of your low interest rate balance transfer offer, you need to remember these features benefits and pitfalls to watch out for so you don’t find yourself in a situation of needing a balance transfer again in the future.
Posted on Tuesday, April 27th, 2010 at 10:39 am
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