Credit Card Balance Transfer programmes are popular short-to-mid term options that can help reduce the amount of interest you are paying on top of your credit card debt. But although it can help you get out of a sticky situation, Credit Card balance transfer programmes may cause more problems if it is undertaken without proper considerations.
For those of you who are considering a Credit Card Balance Transfer, read on to find out about some common pitfalls that you should know about before signing on that dotted line
Don’t Think That Introductory Interest Rate is For Life
If you are inexperienced, you might think that the ultra-low or 0% introductory interest rate you receive when you initiate a balance transfer is for life, but it is NOT.
The truth is: you only get to enjoy introductory interest rate for a fixed period of time, usually just for a few short months, generally 6 months or a year, before you revert to the standard interest rate. Therefore you should inquire about the standard interest rate of your new credit card company because if it is significantly higher than the rate at your existing credit card, you may find yourself paying even MORE in the long run. This is the most important factor that you need to consider.
Factor in Balance Transfer Fee (and Other Charges)
Sometimes you see ads advertising “0% interest rate”. They might tempt you into thinking that this is a great offer. However, make sure to remember that most credit card companies charge you a one-off Credit Card Balance Transfer Fee. There could be other charges as well such as administrative charges or processing fee.
There could be other charges as well such as administrative charges or processing fee.
Say you’re transferring SGD50,000 of outstanding balance from Card A to Card B who charges a 3% balance transfer fee, you’ll be racking up an additional SGD1,500 in debt the moment your transfer is approved. Furthermore, there could be additional charges like Annual Fee, which might have been waived for your previous credit card. Without a clear and repayment plan, all these miscellaneous charges could further increase your debt.
Don’t Terminate Your Old Credit Card As Soon As You Transfer Your Balance
This is probably one of the most common pitfalls of Credit Card Balance Transfer – many people immediately terminate their old credit card as soon as they transfer their balance to a new credit card; forgetting that they are still reliant on a credit card to make their future auto debit transactions.
You must understand that the low or 0% introductory interest deal you’re getting usually covers ONLY the balance you’ve transferred over, and DOES NOT cover the purchases you’ll be making on your new credit card. In fact, it is quite common for your new credit card to charge you higher interest rate for new purchases to “offset” the attractive introductory rate you’re getting. Therefore, be careful when you realize that using your card at this new and less attractive interest rate can worsen your debt situation. In a nutshell, don’t be too hasty in disposing off your old credit card just yet!
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