As the coldest January for years starts to bite and the credit crunch is still in full swing, the financial forecast is pretty frosty for ordinary consumers. But a New Year can mean a new chance to take control and manage your money to your benefit, and taking advantage of credit card balance transfers could be one way to warm up your finances.
The number of 0% credit cards has shrunk noticeably in comparison to January of last year, with the credit card companies tightening up on their criteria and reducing their market exposure and the risk of potential bad debt. Despite this 'market readjustment' though, there are still bargains to be had with some banks and financial institutions even advertising 'Sales' in a bid to lure in discerning customers. Right now, it is very much a consumers market, and savvy customers can take advantage of a market thats eager to keep its share of the economy. There are still 0% balance transfer cards out there; admittedly they're harder to come by but they do exist. The major difference to last year is that credit card companies are being much more stringent in their definition of a 'good' customer, so it pays to check that your credit history is correct and up to date before applying for a balance transfer card. Even a slight discrepancy could scuttle your chances of successfully taking advantage of the tempting offers that are available. If you have a poor credit history, the first half of 2009 would probably be better spent in addressing this and making sure that when you do apply you have a better chance of being accepted.
If your credit history is all in order, there are still a few things to think about before choosing a balance transfer card. Firstly, a transfer fee is usually required to move an outstanding credit card balance onto a new card. This fee is normally around 3% of the total transferred, but some cards do have a minimum fee no matter how small the transferred amount. You will need to include this amount in your calculations of exactly how much transferring to another card will cost.
Not all 0% balance transfer credit cards offer interest free terms on purchases as well. This is where the golden rule of credit card balance transfers comes into force " never use the card for purchases as well. Keep it exclusively for balance transfers. The amount you pay each month will go to pay off the most recent transactions first, rather than your initial balance transfer. This means that you could end up running out of time on the 0% offer, with your monthly payments going to clear off recent purchases when they could be shrinking the size of your balance transfer instead. This could undermine the whole point of taking out a balance transfer card in the first place, as you may start paying interest before the debt is cleared.
Some cards offer a tempting combination of 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. In a direct reversal of the above scenario, with these cards once the 0% on purchases has run its course your payments go to the amount attracting the lowest interest rate first, namely your balance transfer. This is known as 'negative payment hierarchy' and results in the customer paying the full interest amount on purchases (usually a minimum of 18% on most cards) and costing more in the long run. To reiterate; the best advice is to have two cards " one exclusively for your balance transfer and one for your purchases.
Once you've decided (wisely) to keep your cards separate, work out how much you can expect to pay each month and how much you will need to pay to clear off the balance transfer amount before the interest free period ends. Dont forget to factor in additional charges such as insurance (sometimes mandatory), any late payment fees and transfer fees. By taking active control over your finances, you may find the current economic storm much easier to weather. The financial market is subject, like any other marketplace, to greater consumer power these days, and as such a smart customer can take advantage of financial deals, even when the economic future looks somewhat bleak.
The number of 0% credit cards has shrunk noticeably in comparison to January of last year, with the credit card companies tightening up on their criteria and reducing their market exposure and the risk of potential bad debt. Despite this 'market readjustment' though, there are still bargains to be had with some banks and financial institutions even advertising 'Sales' in a bid to lure in discerning customers. Right now, it is very much a consumers market, and savvy customers can take advantage of a market thats eager to keep its share of the economy. There are still 0% balance transfer cards out there; admittedly they're harder to come by but they do exist. The major difference to last year is that credit card companies are being much more stringent in their definition of a 'good' customer, so it pays to check that your credit history is correct and up to date before applying for a balance transfer card. Even a slight discrepancy could scuttle your chances of successfully taking advantage of the tempting offers that are available. If you have a poor credit history, the first half of 2009 would probably be better spent in addressing this and making sure that when you do apply you have a better chance of being accepted.
If your credit history is all in order, there are still a few things to think about before choosing a balance transfer card. Firstly, a transfer fee is usually required to move an outstanding credit card balance onto a new card. This fee is normally around 3% of the total transferred, but some cards do have a minimum fee no matter how small the transferred amount. You will need to include this amount in your calculations of exactly how much transferring to another card will cost.
Not all 0% balance transfer credit cards offer interest free terms on purchases as well. This is where the golden rule of credit card balance transfers comes into force " never use the card for purchases as well. Keep it exclusively for balance transfers. The amount you pay each month will go to pay off the most recent transactions first, rather than your initial balance transfer. This means that you could end up running out of time on the 0% offer, with your monthly payments going to clear off recent purchases when they could be shrinking the size of your balance transfer instead. This could undermine the whole point of taking out a balance transfer card in the first place, as you may start paying interest before the debt is cleared.
Some cards offer a tempting combination of 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. In a direct reversal of the above scenario, with these cards once the 0% on purchases has run its course your payments go to the amount attracting the lowest interest rate first, namely your balance transfer. This is known as 'negative payment hierarchy' and results in the customer paying the full interest amount on purchases (usually a minimum of 18% on most cards) and costing more in the long run. To reiterate; the best advice is to have two cards " one exclusively for your balance transfer and one for your purchases.
Once you've decided (wisely) to keep your cards separate, work out how much you can expect to pay each month and how much you will need to pay to clear off the balance transfer amount before the interest free period ends. Dont forget to factor in additional charges such as insurance (sometimes mandatory), any late payment fees and transfer fees. By taking active control over your finances, you may find the current economic storm much easier to weather. The financial market is subject, like any other marketplace, to greater consumer power these days, and as such a smart customer can take advantage of financial deals, even when the economic future looks somewhat bleak.
About the Author:
Financial writer James Noon writes for various popular financial-based websites. He specialises in breaking down financial jargon for the regular consumer. You can find out more about credit card balance transfer here.
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