What if you were able to maintain your current spending levels in a way that is less punitive? Well, sometimes people pay a heavy price for getting too comfortable with their existing credit card providers and this article will explain exactly why.
In Australia, the average credit card APR is over 17-percent, and this rate can be pretty high for those struggling with high credit card debt. Luckily, with balance transfer credit cards, you have the chance to manage your balance well and possibly clear it.
The best thing to do is to take advantage of the 0-percent promotional periods to repay the transferred debt in full.
There is no need to try and take full advantage of tips and loopholes or to overcomplicate things. It is really as simple as finding the right card. Using a comparison engine that specializes in low balance transfer credit cards, like Creditcard.com.au, is usually the easiest way to evaluate incentives and features side-by-side. On the same site, you can also read the commentary of financial experts like Roland Bleyer when Australian consumers ask questions on the topic.
With the above in mind, here are a few things you need to know about balance transfer credit cards.
1. You Can Save Money
A balance transfer credit card can reduce your interest payments significantly, particularly if you get a 0% rate for 12 months or more. For instance, you have a $10,000 balance and paying a 15% interest rate p.a. This is about $125 monthly interest payments and $1,500 in a year. A 12-month 0-percent balance transfer card helps you avoid paying the $1,500 interest.
But, you have to pay the transfer fee, which can be about 3 percent to 5 percent of the balance. For example, if you’re transferring a balance of $10,000 at a fee of 5 percent, your fee will be $500.
You can get an APR period of 6, 15, 18, or 24 months. This means you can pay back the $10,000 before the period ends without interest payments, saving you money.
Watch the video below on related credit card tips:embedded by Embedded Video
2. It Can’t Be Used as a Regular Credit Card
It’s important to note that you can’t use the card as a regular credit card until you have cleared the balance.
Just because you got a 0-percent APR period doesn’t mean you can use it whichever way you want. The 0-percent rate only applies to the balance you’ve transferred. Any new purchases or cash advances will attract a higher interest rate.
For most balance transfer cards, repayments are usually applied to the highest-cost debt first. If you use the card for purchases, your repayments will cater to those purchases first, thus delaying the payment of the transferred balance.
3. You’re Transferring the Debt
With balance transfer cards, you’re not clearing off your debt. You’re transferring it to another card to take advantage of a lower or zero interest rate. So, don’t get too comfortable when you qualify for the card.
It’s advisable to be careful when searching for a balance transfer card if you want it to work for you. It’s pointless to get a card only to have your debts pile up again. Strive to pay the balance within the 0-interest APR period to take control of your finances.
When you get approved, find out when your introductory period ends. This way, it will be easier to know your monthly repayments and create a clear budget that accommodates the new balance.
4. You Might Need Good Credit
Applying for balance transfer cards is similar to applying for regular credit cards. You can easily qualify for zero-interest balance transfer cards if you have a good or excellent credit score.
Before you apply for the card, get your credit report, and ensure it’s free of mistakes. For Equifax reports, a great score is anything from 622 to 1200.
You’ll also need to provide identification documents and personal information like name, address, and phone number. Lenders will probably need your financial information, such as current bank account balance, outstanding debts, and expenses.
5. No Interest-Free Days
Regular credit cards usually offer interest-free days for purchases if you make repayments on time.
But that’s not the case with balance transfer credit cards when you use them for regular spending. This only applies when you have not completed paying the transferred balance. If you’re not ready to pay interest, it’s worth not using the card for purchases when you have an outstanding balance.
Depending on the card you picked, you may be eligible for 44 to 55 interest-free days once the balance is completely paid. You can then use the card normally.
When used the right way, balance transfer credit cards can help to save money on your credit card debt repayments.
Once you apply for the card, it takes about 24 to 48 hours to get a response. Once approved, the new provider will transfer the balance to your new card using the card details you provided during the application.
Be sure to cancel your old credit card as soon as the balance is transferred. This is something you have to do yourself. Failure to do so could see you paying annual fees for a card you’re no longer using. Leaving it open can also tempt you to start spending again, increasing your debt.
Remember to set up a repayment plan and limit your future spending. Also, lower your credit limit to focus on paying the balance. You can request a limit increase later in the future.