Pitfalls Of A Balance Transfer Credit Card

February 15th, 2010

Learn about the mistakes people can make when they take a balance transfer credit card. Understand why avoiding a few pitfalls is essential to get the best from your card.

0% p.a. for 6 months with 2% handling fee

So, you have a debt on a credit card that you wish to transfer to a new balance transfer credit card? You know you’re going to save a small fortune on interest charges, so what can possibly go wrong?

Unfortunately, there are a few points to watch out for. Fortunately, it is completely within your power to avoid being caught out.

Making purchases on your card

No no no. This is not what you should be doing with a balance transfer credit card. Any purchases you make on a balance transfer credit card will be subject to the standard interest rate. Most people realise this, but you may not know how this can utterly foil your plans to save yourself a few dollars.

According to a general rule of balance transfer credit cards, variously called the allocation of payments rule, the order of payments rule, the adverse order of payments rule, or the payments hierarchy rule, any repayments you make on your new card will go to reduce only your balance transfer amount first.

Purchases or cash advances on the card will effectively be locked behind the balance transfer debt until it is paid off in full. If you make a high value purchase on your card at a regular APR of 15%, you will continue to pay that rate on the full amount of your purchase until the backlog of your balance transfer is paid off. If that’s six months or a year or five years, that’s just tough.

Old habits die hard

Taking a balance transfer credit card is an excellent way to reduce your debt more quickly. It is not a means of putting off the day you need to face up to reality and pay your debt. Nor is it a way of freeing up a little extra cash that you can go spending with again.

You need to be committed to changing bad habits if your balance transfer is to work effectively. Credit card companies are wise to the practice of passing debts from one balance transfer credit card to another, and they don’t allow it to carry on for ever. One fine day you will make your credit card application and be rejected.

Leaving it too late

This applies to missing the great offers that are currently available, and not acting swiftly enough once you have your balance transfer credit card in your hand. Balance transfer offers are time limited in that you may not be able to set one in motion after a certain length of time. That may be 90 days after receiving your card, or even as little as 30 days. Besides which, why would you want to lose a single day of your reduced rate of interest?

Editors Choice: Featured Credit Card Deals

	Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
Westpac 55 Day Credit Card	0% for 5 months (reverts to 19.59% )	3.99% for 6 months	$0	21.49%
Citibank Clear Platinum Card	11.99%	2.9% for 12 months	$99	21.74%