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Credit card balance transfer

If you’ve ever owned a credit card, it’s likely that you’ve been offered a ‘free balance transfer’ by a third party. Although these can save you money, it is very important to read the small print before accepting the terms.
Carrying a balance on your credit cards

As it’s so easy to get credit cards these days, many people have two or three, or even more. However, carrying balances on credit cards, especially numerous cards, can become expensive. In fact, many people do not know that carrying a balance on your credit card is probably the most expensive way to borrow money.

If you are making a large purchase, it might be better to ask your bank for a personal loan rather than putting it on your credit card. A quick comparison can be made by looking at the APR (Annualised Percentage Rate), the amount of interest charged. A personal loan from a bank could carry an APR of around six to eight per cent; however, a credit card balance could carry an APR of as much as 23 per cent.

If you have many credit cards and are carrying balances on these, it may make sense to consolidate your debts and lower your interest payments. This can be done by taking advantage of free balance transfers or consolidating balances on a card that has the lowest APR. Credit card companies have to clearly state what APR they are charging on every statement.
How to take advantage of balance transfers

The bottom line is that credit card companies make money on people carrying balances on their cards. Therefore, credit card companies wanting you to transfer balances to their cards will offer free balance transfer deals. This sounds sneaky, but if you know what you’re doing, you can actually save money by making use of these offers.

For example, let’s say you have three credit cards, each with a balance. One credit card company sends you an offer for a free balance transfer. Look at the offer closely, as most companies will offer a deal with a time limit, for example, three months. This means that for three months you will not be charged interest on a balance you transfer from another card. Since your existing card will continue ro charge you interest on your balance, by moving the debt to another card offering a ‘free balance transfer’, you can save interest payments during that period.

If you can pay off the balance during the ‘free’ time, this is a good deal. However, you need to be aware of when the ‘free balance transfer’ period runs out, as the credit card company may then charge a much higher interest rate or APR. Make sure to read the fine print. There are people that continually switch cards to avoid paying interest charges on their credit card balances.