Understand why you should not make any purchases or cash transactions on a balance transfer credit card until the debt has been paid off. Avoid this one mistake so you can take full advantage of the opportunity to reduce your debt faster.
As much as balance transfer cards can be a great way to reduce your interest charges on a credit card debt, they can be a cause of even more trouble if you do not understand the biggest mistake to avoid with them.
It is written into the fine print of every credit card that the credit card provider reserves the right to allocate the repayments you make in which ever order they see fit. If all you ever do with a credit card is make purchases at one set rate of interest, this is not relevant to you. Where it will apply is when you make cash advances and especially when you make a balance transfer.
The wording in the fine print is often referred to as the allocation of payments rule, or the adverse order pf payments rule. It is the credit card provider’s way of making extra money from people who take a balance transfer card without fully understanding how they work. You may not even fully appreciate the significance of the repayments rule even if you do read the fine print, because the mechanics are not spelled out.
In essence, it works this way: If you make a balance transfer to a card at 0%, make purchases on it at 15%, and make cash transactions at 20%, then your balance transfer will be repaid first. Not until the transfer has been repaid in full will your purchases be attacked, and only when those are cleared will your expensive cash advances be reduced by a single cent. In this way, your most expensive debts keep accruing interest for the longest time.
The biggest mistake with a balance transfer card is therefore to do anything other than transfer a balance to it. You cannot make any purchases on it and you cannot make any cash transactions. Imagine taking twelve months to pay off a balance transfer, and all that time you have $1,000 worth of purchases accruing interest at 15%. The potential savings on your interest charges with the balance transfer are largely or completely ruined by the continuing build-up of your purchases interest.
If you want to make any purchases whilst you have a transferred debt on a balance transfer card, do not use that particular card; use cash or debit card or another credit card.
Related posts:
- Avoiding The Biggest Mistake With A Balance Transfer
- How Balance Transfer Cards Work Exactly
- How Low Interest Rate Balance Transfer Cards Work
- Balance Transfer Cards Becoming More Popular In Australia
Posted on Tuesday, April 6th, 2010 at 1:11 pm
You can leave a response, or trackback from your own site.
