How Does a Balance Transfer Help Save Money?
Posted July 14th, 2010 and last modified May 10th, 2011
Balance transfers offer a 0%-interest feature that can help minimize your payments. Take advantage of the limited period 0%-interest balance transfer credit cards by paying as much as you can during this interest-free period.
Many of us have been told that transferring our credit card charges to a 0% balance transfer credit card can help us save money. Unfortunately most of us don’t know what a 0% balance transfer credit card is, or how it works.
How Do They Work?
The big myth about 0% balance transfer credit cards that they do not charge interest. This is not true, interest is charged on these credit cards. The difference is that new customers are given a period of time, usually the first 90 working days they hold the card in which no interest is charged.
The credit card companies do this because they want your business. Not charging interest is simply a promotion designed to get you to switch to a new credit card. After the 90 days is up the 0% balance transfer credit card will start charging interest on your outstanding balance. Although the no interest period is not a permanent arrangement, these credit cards are still a really good deal for consumers.
Balance transfer credit cards are a really good deal because they give you an opportunity to pay off your credit card balances without accruing any more interest on your credit card balance. Every time credit card companies charge interest they increase the credit card balance by the percentage of the interest rate.
When no interest is being charged on a credit card even for a short period of time the balance does not go up. This enables the credit card holder to save some money in the short term.
Save Money
If you pay off your credit card balance during the 0% balance period you will save some money. A good strategy is to pay off as much of your balance as possible after you transfer your balance to the new credit card.
The way a balance transfer works is simple, the new credit card company pays off the existing balance on your old credit card. The old credit card is cancelled and the new balance from the old card is added to the balance on the new card. This means that all of the charges on your old card including any interest, late fees and penalties you accrued on it will be transferred to your new card. Transferring a credit card balance does not erase your credit card charges it simply moves them to a new credit card.
You will still have to pay off your credit card charges after a balance transfer. The major change you will notice is that you will have to send your payment to a different credit card company.
Always read the contract for the new credit card carefully before transferring your balance. Pay careful attention to the fine print and look for hidden charges and fees. You will want to do this to avoid getting stuck with a higher interest rate or fees after the interest free period is up.
There are 0% balance credit cards that are simply gimmicks designed to get you to move to a new credit card company. These gimmicks may not actually save you any money in the long run. You have to look out for high fees, excessive standard interest rates, and other catches.
Paying off all of the credit card balance as soon as you switch to the 0% balance credit card is always a good idea. This will eliminate your balance and reduce your credit card bill to a small monthly fee.
It will also make you look good in the eyes of the credit card company which might cause it to increase your credit card limit. It can also improve your credit record which can make it easier for you to get loans, mortgages and other credit cards.
Always compare several different 0% balance credit cards before switching to a new credit card. Look over the card offers carefully and use the Internet to locate and look at as many offers as possible.
There are a number of excellent 0% balance credit comparison sites available online. Using their services will make it easier to compare offers and save money. This way you will be sure that you are getting the best deal on a 0% balance credit card. Switching to the card with the lowest interest rate will always save you money in the long run.
Even if you do transfer your credit card balance you should remember that paying off your entire balance every month is the best way to save money on credit cards. Paying off the balance keeps interest from accruing which reduces your overall costs.
Keeping your credit card balances paid off will also give you more money to spend, save and invest each month. When you pay off your credit card balance it is like giving yourself a raise because you will free more of your income to do the things you want rather than pay credit card bills.
Featured Balance Transfer Offer
The ANZ Low Rate MasterCard offers a low interest rate on purchases. If you have a credit card balance that you carry over from month to month, a balance transfer could be worth considering. They give you the chance to transfer your debt, and pay little or no interest on that balance transferred. You can then use the money saved in credit card interest repayments (and more!), to repay your credit card faster.
- $58 annual fee
- 0% p.a. for 3 months (reverts to 13.24% p.a.) on purchases
- 0% p.a. for 3 months on balance transfers
- Cash Advance Rate of 21.49% p.a.
- 55 days interest free
- Minimum Income Requirement of $15,000 p.a.
Read the ANZ Low Rate MasterCard – Balance Transfer terms and conditions.
Image source: Kevin
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