Credit Card Balance Transfer Revisited
Credit card balance transfers are one of the financial world's
great empowering features, but they can only be done
successfully if you follow the rules and don't fall foul of
them. Firstly you must consider the benefits, then the pitfalls.
These two aspects are more or less permanent features of the
credit card balance transfer system.
The benefits can be summarised as the product of a twofold
strategy:
You can transfer credit card balances once the initial interest
free period is up to another card, and so continue your interest
free credit.
You can more or less plan to do this in advance as long as you
have a way of finding new cards to transfer to, and you stay in
control of your finances and spending.
Taking these two together - the transfers and the planning - you
can aim to give yourself interest free credit for a long time,
even interest free credit for years.
The pitfalls are as follows, and must be considered carefully.
These are:
Overshooting the Interest Free period
This is a crucial and fundamental issue. There is no point
taking out a card with a known zero interest period or low
interest period if you just go and breach that time period.
Check the date that the interest free allotment ends, and then
backtrack by about ten days before then. Ten days is about the
right time to apply for a new card. Remember that the
application itself will take time, and that this time will vary
from card to card. Take into account seasonal changes in the
speed and effectiveness of the mail delivery. In the run up to
Christmas, for example, it would be wise to allow two weeks.
Minimum Repayment Obligations
Remember to check on what your agreed monthly repayment
arrangements are. You may have to pay back a certain percentage
(three percent or more, depending on the card) or risk incurring
minimum payment fees. This is true even if it occurs within the
interest free period, as the credit card provider will want to
know that you can at least maintain a minimum repayment to
justify the confidence in you when you originally signed up. On
some cards, however, such an arrangement may not apply.
Late Payment Obligations
Much the same as above, but this time the emphasis is on paying
within a certain time per month. Again, the card issuer may want
some kind of assurance that money will be repaid even though
interest is not being charged. There will be an extra fee
charged if your payment is late, and for small balances this may
well be proportionally higher than the interest which would
otherwise have been payable (if the charge is a lump sum, as is
usually the case). If this arrangement exists, then the best
policy is to pay the minimum the same day as you get the
statement.
Annual Fees
Remember to check the small print before you apply for the card.
This may include information about an annual fee, which is the
fee that the issuer will charge you every year for using their
credit card. By no means all credit cards have an annual fee,
but you must remember to build this in to the total cost of
using the card. Things like annual fees tend to muddy the APR
figures, which would otherwise give a good indication of how
much your credit card actually costs. It is therefore an
important factor to consider when deciding which credit card is
the right one for you.
Exceeding Your Credit Limit
Whatever you do, don't exceed the credit limit that you agreed
and signed up for at the time you applied for the card. If you
do this then you will probably be charged (depending on the card
supplier) a percentage or a flat fee. This would be particularly
reckless, as it would go against everything that you set out to
do in the first place, namely to gain a fixed amount of credit
without paying any interest on it!
Of the above five negative factors to be considered, it is
always best to think of them all together, as each of them may
impact in different proportions depending on the credit card and
lender. For example, one card may not charge annual fees, but
will come down very heavy on late payment charges; while another
card will be lenient about an overextended credit limit but will
offset this with a fixed annual charge.
It is possible to meet the criteria of the first two positive
benefits, as well as avoid all the pitfalls by careful timing.
As long as you transfer your credit card balances in a timely
fashion, and observe the rules of the transfer itself, you
cannot go wrong. Always remember that there are more credit
cards out there to transfer your balances to.