Common Balance Transfer Pitfalls

Post by Sharat on April 7, 2018 · Under credit cards · Comments Off on Common Balance Transfer Pitfalls 

Balance transfer cards are useful because they allow credit card borrowers to consolidate their debt onto a single card that usually has a long interest free period. This means the borrower is able to pay off their debt without incurring additional interest rate charges. This does sound too good to be true doesn’t it? Well to some extent it is, there is a catch, lenders are increasingly tacking on fees to transfer a balance, which is usually some fraction of the balance being transferred.

Card issuers imposing transfer fees

Over the last year more and more card issuers are imposing this fee so it is important if you are planning to use a balance transfer credit card to pay down debt, that you check the fine print before transferring your balance. Make sure you shop around for a balance transfer card that does not charge a transfer fee otherwise you will find the first payment you make will be going towards paying off this fee instead of your debt. Balance transfer fees are calculated as a percentage of the amount being transferred, ranging anywhere between 1 to 3 per cent.

Another balance transfer trap to avoid

Another mistake to avoid is using your balance transfer credit card to make purchases. The interest free period only applies to the debt you transfer. Any new purchase made using your balance transfer card will be charged credit card rates of interest if you don’t pay off the purchase immediately. That means whatever repayments you make will first go towards paying off whatever new debt you have accrued and not towards paying down your existing debt, so do not do this.

What happens if you don’t pay off your credit card bill on time?

Australians are increasingly using credit cards to pay for their living expenses. Whilst this is convenient, you should make sure you stick to your repayment plan and avoid succumbing to the temptation to splurge. If you are using a balance transfer card to pay down debt, make sure you have a plan, resist the temptation to overspend and make sure you know exactly how much you should be paying off at the end of every billing cycle. All of that is critical if you wish to use a balance transfer card to pay off your debt. If you know you can resist the temptation to spend then a balance transfer card is a great way to get out of debt, just remember to read the fine print first.

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