Why Should I Avoid Cash Transactions On A 0% Balance Transfer Credit Card?
Posted November 14th, 2009
and last modified December 7th, 2009If you are about to take a 0% balance transfer credit card, or you have one and are considering making a cash transaction on it, think again.
There’s a clue in the title. This particular credit card is for 0% balance transfers. That doesn’t mean you can’t do other things on the card, but it does mean it’s not advisable.
If you make a balance transfer for six months at 0%, that’s six months when you don’t have to pay any interest on your debt. That’s exactly how it should be. So leave it at that. Lock the card away in a drawer until the offer period expires.
There are two main reasons why you should not make any cash transactions on your card:
- Any repayments that are made on your 0% balance transfer card will go towards the 0% debt, and any other debts – whether purchases or cash transactions at a higher rate of interest – will not be paid down by a single cent until the transferred amount has gone.
- Cash transactions are bad enough at the best of times, with their higher than normal interest charges and fees.
The first point refers to the “adverse order of payments” rule. You won’t see this in any banner headline, but it means your debts are always paid off in order of the cheapest first. That leaves your debts at the higher interest charges making money for the credit card provider. So whilst your balance transfer is sitting pretty at 0% for six months, your purchases and cash transactions are sitting untouched, eating into the savings you thought you were making on your balance transfer.
The seconds point is about the higher than normal interest rates on cash transactions. These are usually around 20%, and they do not benefit from any interest-free days you may enjoy with purchases. Your regular APR may range from 11% to 20%, but your cash transactions are always going to be around 20%. It’s a message from your credit card provider that making these transactions should be the reserve of your debit card instead, so if you do go ahead and make them on your credit card, then on your own head be it.
You should also bear in mind that cash transactions will normally attract a cash-handling fee as well, only making it worse. This does not just mean using an ATM, but also getting cashback at a store, buying foreign currency or traveller’s cheques, or making any gambling transactions on your card. All of these will create a debt that will sit accruing interest at the 20% mark until the 0% balance transfer has been paid off in full.
Related posts:
- How To Avoid Balance Transfer Pitfalls
- Why Do I Have To Pay A Balance Transfer Fee? Can I Avoid Paying It?
- Credit Card Balance Transfer: 9 Important Facts on Balance Transfers
- HSBC Credit Card – $0 Annual Fee, 5.99% balance transfer & $50 cash back
- How Do Life Of Balance Transfer Credit Cards Work?
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Best Balance Transfer Credit Card Offer
The Bankwest Lite MasterCard is Australia's cheapest credit card offer, giving you the lowest MasterCard purchase rate of just 10.75% p.a. as well as a long balance transfer offer on your existing credit card balance at 1.99% p.a. for 9 months!
Editor's Choice: Our Top Credit Cards
| Credit Card | Card Details | Interest Rate (p.a.) | Cash Advance Rate (p.a.) | Balance Transfer Rate (p.a.) | Annual fee | Interest free days (up to) | |
|---|---|---|---|---|---|---|---|
 Bankwest Lite MasterCard |
 Editor's Choice:Cheapest Credit Card The lowest stress mastercard, with Australia's lowest MasterCard purchase rate of just 10.75% p.a. |
10.75% | 21.49% | 1.99% for 9 months | $59 | 55 |   |
 St George Vertigo |
 Editor's Choice:Best Bank Low 2.99% for 6 months (reverts to 11.99%) p.a. interest rate and balance transfer rate, from one of Australia's most respected banks. |
2.99% for 6 months (reverts to 11.99%) | 20.74% | 2.99% for 6 months | $55 | 55 | |
 Coles Group Source MasterCard | The Coles Group Source MasterCard has no annual fee, a 0% p.a. balance transfer offer for 6 months, with a rewards program including savings on fuel and FlyBuys Points | 19.74% | 21.99% | 0% for 6 months | $0 | 62 | |
 Citi Clear Platinum Visa |
Editor's Choice: Low Interest An excellent low interest credit card offer with 11.49%interest on purchases and 0.99% for 6 months on balance transfers . |
11.49% | 20.99% | 0.99% for 6 months | $49 (First Year, Save $50) | 55 | |
 Bankwest Zero Platinum MasterCard |
Editor's Choice: No Annual Fee Excellent introductory offer with a $0 annual fee for the life of the credit card and a 1.99% p.a. for 9 months on balance transfers |
16.99% | 16.99% | 1.99% for 9 months | $0 | 55 | |
December 3rd, 2009 at 3:01 pm
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