Balance Transfer Credit Cards

If you're struggling to repay a mountain of debt, then balance transfer credit cards could be the ideal solution for you. With the option of paying much lower interest rates, opting for a balance transfer could easily help you reduce your credit card debt quickly.

Compare the Best Balance Transfer Deals

A very smart way of managing your credit card debt is to transfer your balance to a low interest card, or a 0% interest card (for a limited period). Known as balance transfer credit cards, these cards provide varying features and come with different terms and rates attached. We discuss the major types of balance transfer credit cards currently offered by the top card issuers, and show how to pick the card that is right for you.

If you are facing difficulty in paying off your credit card balance(s), or you would simply like to speed up your repayment rate by reducing the amount of interest paid, transferring your balance to a low rate card might be the perfect solution. Balance Transfer Credit Cards come in various guises however. Here are the three primary types:

1. 0% Balance Transfer Credit Cards - With these cards you pay no interest at all, but only for a limited time.
2. Low Rate Balance Transfer Credit Cards - Instead of 0% you pay a small interest rate, also for a limited time.
3. Life of Balance Transfer Credit Cards - Similar to low rate balance transfers, except the low interest rate is fixed for the life of the balance (i.e. as long as the balance remains outstanding)

Choosing a card purely on the basis of interest rate is not always optimal. There are additional costs to be taken into account, such as balance transfer fees, annual fees, length of promotional period, and subsequent interest rate applied (whether you pay at normal purchase rate or the cash advance rate after the end of the promotional period). The following sections delve deeper into each type of Balance Transfer Credit Cards to make it easier for you to compare alternative offers.

0% Balance Transfer Credit Cards

The fastest way to reduce your credit card balance is to not pay any interest at all, that way all your monthly payments go directly towards repaying the balance. This is exactly what a 0% balance transfer card lets you achieve. It is in effect placing your debt in a "moratorium" where interest payments are foregone. There is a time limit though, and when this temporary suspension of debt ends, you will end up paying much higher interest rates on any balance still outstanding. For this reason some cardholders prefer a life of balance transfer card, where they pay a small amount of interest from the very beginning of the transfer, but that rate stays steady throughout the balance repayment period.

The promotional rate (in this case 0%) start as soon as your transfer transaction is completed, and lasts as long the introductory period specified. This introductory period varies in length from one card to another, mostly it is between 3 to 6 months, and can be as high as 15 months for a few offers. At the end of this promotional period these cards will begin to accrue interest at a much higher rate, typically at the cash advance rate, which is the highest possible rate a card provider charges.

And that is precisely why card issuers offer 0% balance transfers - they are hoping you would end up paying the high interest charges on the remaining balance. They also gain from the card annual fee and any balance transfer fee too. But you do not have to end up accommodating them if:

• You repay the total balance - This will require good budgeting on your part. You need to ensure that you can make regular contributions towards reducing the balance. It is simply a matter of calculating your monthly expenses and earnings, and saving enough every month for the payments. If your figures add up, and you can stick to the repayment schedule, you can estimate how many months would be required to pay off the total balance. Just pick a card that provides enough months interest free and continue making regular payments.
• You move to another 0% balance transfer card - You can repeat the process with another similar offer and transfer the remaining balance again. There are costs associated with continual moves though, you need to pay balance transfer fees (usually about 3% of current balance), new annual fees, and there might even be card closure fees. On top of the fact that these additional costs might outweigh potential savings, there is also a chance that you may not find comparable offers in due time, or your application for a new credit card might be rejected. Therefore it is safer to target full repayment rather than rely on perpetual balance transfers.

Sometimes balance transfer fees are capped. Instead of paying 3% of your current balance you can re-transfer your balance for a fixed sum. If you are aiming for the second option above, or you estimate difficulties in complete repayment within the promotional period, keep an eye out for such capped balance transfer fee offers. Another option at the end of the period is to move your outstanding balance to a low rate balance transfer card instead of another 0% balance transfer card. You may have to pay some interest but at least that will be a fixed amount for as long as you have the balance outstanding.

To recap, here are the features and terms to take note of while comparing 0% balance transfer deals:

• How long will the introductory period of 0% interest last
• What will be the applicable interest rate after that period
• What is the annual fee of the card
• How much is the balance transfer fee (any capped fee option available?)
• How much interest will be charged for additional purchases through the card
• Will it give interest free days on purchases or any reward points while a balance transfer is ongoing

Based on the above criteria, you can conclude that a 0% balance transfer credit card is ideal for you if:

• You have a large amount of credit card debt outstanding that you\'re having difficulty repaying
• Your current interest rate is high enough to make the repayment rate very slow
• You need a bit of time (a financial breather) to reorganize your finances and debt
• You can repay the full balance within the introductory period

You should avoid 0% balance transfer cards if any of the following is applicable to you (in these cases there are better alternatives):

• Your balance is too large to pay off within a year - Most introductory periods last for at most 12 months, a few go up to 15 months. If it will take you longer to repay the balance you should consider a low rate or a life of balance transfer card instead.
• You need to use the card for other purchases, or you want reward points - Most of these offers charge higher interest on purchases, and will often not let you repay the balance on additional purchases unless the balance transfer is paid off, so these purchases keep accruing interest. There are some exceptions (0% balance transfer + 0% purchases) but even these cards normally have some sneaky clause where the 0% rate on purchases is for a much shorter period than the balance transfer. Overall its safer to use this card simply as a debt management tool, and use another card for purchases and reward points.

Low Rate and Life of Balance Transfer Credit Cards

Low Rate Balance Transfer cards feature a smaller than average interest rate on any balance transferred, mostly for a certain promotional period and sometimes as long as the balance is outstanding (life of balance cards). They are useful for consolidating your credit card debt and bringing your finances into order by allowing faster repayment of balance. In some cases they can offer a better deal overall compared to 0% balance transfer cards.

Low rate balance transfer cards are best suited for cardholders who are paying high interest rates on their current debt, and can benefit from a much lower rate of interest. If your balance is not that high though, or if you are able to repay the balance in full within a year, then these cards might not be the best solution for you. You should go hunting for a 0% balance transfer deal instead.

When shopping for a low rate balance transfer card use these criteria for evaluating competing offers:

• which card offers the lowest interest rate on balance transfers
• who provides the longest introductory period (don't forget life of balance cards)
• what is the normal interest rate on purchases (if you decide to use this card for purchases as well)
• what is the balance transfer fee (or the handling fee), and is it capped or not
• what is the annual fee of the card
• is the interest rate fixed or variable (some banks will charge a fixed rate on balance transfers, others will charge a variable rate that depends on some other base rate)
• how are the repayments allocated (does it always go toward reducing the transferred balance, or can you use it to repay later purchases as well)

After you've selected the best card based on the above points, keep the following in mind while using the card:

• transfer the balance as soon as you can - most balance transfer cards require you to transfer within a month of getting your card, otherwise you miss out on the low rate offer. It is best if you can put in the transfer request in the application form, or failing that as soon as you receive your new card.
• ensure you meet the minimum monthly repayments - the minimum repayments are a small amount of the total balance, typically around 2 to 3%. If you fail to make the minimum monthly payment you can lose the low rate deal. It is preferable to make more than the minimum payment to reduce the balance gradually. You should budget for it right from the start.
• keep a separate card for purchases - use another card for daily purchase requirements and reward options, as they might not be available on the low rate deal. Even if they are it is best to keep them separate as a myriad of interest clauses in such contracts have the potential to significantly affect your interest payments.

Hopefully this discussion has provided you with a thorough overview on the subject of balance transfer credit cards. You should now feel confident in choosing the best card for yourself.

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	Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)