Balance transfer credit cards. What do I need to know?

Q:  I’d like to get a balance transfer credit card. Is there anything I should know before I apply?

Answer: Credit cards offer a way to stagger larger payments in your life. After all, you may not be able to afford that holiday on one pay check, but with a credit card you can book it and pay it back over six months.

Unfortunately, for too many of us, clearing credit card debt is never as easy as the spending, and when the interest-free period expires and the high rates kick in we can often be left paying more than we can afford.

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That’s where balance transfer cards come in – just swap your debt over to a card with a lower interest rate and pay off your debt comfortably. However, if it’s so easy, why doesn’t everyone do it? While balance transfer cards are great, there are some things to know before you apply.

Timing is everything

Balance transfer cards, like all credit cards, aim to lure you in with a cheap initial rate, before earning their money when your deal reverts back to a higher rate.

When taking out a new balance transfer credit card always make a note of how long the low rate lasts – this is more important than the actual rate. Once you’re happy make a careful note so you remember to either clear your balance or transfer within a month of that end date.

What’s more the headline rate – the one you see advertised – is not necessarily the rate you’ll be offered. The rate you’re given will depend on your credit score.

Speak to your provider

Nothing will make your credit card provider move quicker than the threat of losing you. If you’ve seen an attractive balance transfer deal speak to your current provider first – they may have similar deals for existing customers that will mean less paperwork for you.

Cover your base

Even the best credit cards still require you to cover your minimum repayments, even if they seem incredibly low. However, despite the cheap rates the cost of missing a minimum repayment could be the end of your deal and a reversion to higher rates, rendering the whole exercise of seeking out a balance transfer card rather pointless.

Pay your debt, don’t spend

A balance transfer card is for one thing and one thing only – clearing your debt. If you find yourself spending on it as well you can quickly see your debt spiral. This is because any repayments you make go towards clearing your spending first, rather than any outstanding debt. What’s more, any spending you fail to clear will often be charged at a higher rate.

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