|
Credit Card Balance Transfer Revisited
By: Gordon Goodfellow
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.
About the Author:
Gordon Goodfellow is an Internet technologist who lives and works in London. His
credit card sites automatically alert people before the interest free period
ends. http://www.credit-card-transfers.com and http://www.credit-card-transfers.co.uk
|
