Benefiting from Introductory Rates & Honeymoon Rates on Credit Cards
There are some specific times when the ultra-low rates offered by some credit card companies can really save you money. However, it’s equally true that there are some times when these low rate offers might not always be as good as they seem.
What Is a Honeymoon Rate?
Honeymoon rates are low introductory rates that are offered by a credit card company for a limited time to entice new customers. After this period expires, the rate reverts to a higher interest rate. The revert rate is usually that credit card’s purchase rate, although some lenders will default to the cash advance rate after an introductory low rate, which is usually higher than the purchase rate.
When Can a Honeymoon Rate Help?
Introductory rates and honeymoon rates can be an ideal way for people with large credit card balances to get back in control of their finances and begin to reduce credit card debt.
For example, if you’re currently paying high rates on your outstanding balance, then you can transfer that balance to a lender offering a low introductory rate and reduce the amount of interest you pay on your debt. If you put your interest savings towards your balance each month, then you can benefit from reducing your debt levels before the low rate expires.
This will leave you with less debt in the end. You will also notice that, even though the rate may have reverted to a higher rate, your minimum monthly repayments should have been reduced as a result of the lower balance amount.
Comparing Low Rate Offers
Some introductory rates and honeymoon rates are only offered for 5 or 6 months, while others may extend to 12 months or more before they revert to the higher rate.
If you believe you can repay the bulk of your outstanding balance during the cheap rate period, then a shorter term might be sufficient. However, if your balance is higher than you reasonably expect to pay off in this time, perhaps opt for a longer introductory period.
While it’s possible to save money and reduce the amount of interest you pay on credit cards by switching to a low rate card, if you continue to charge purchases to your card, you could find you’re no better off in the end. These are only good ways to save money if you’re careful about not increasing your debt further.
An introductory credit card rate can save you money.
These rates can be a more tricky then they seem when you see an advertisement for the offer. Remember that the credit card company is not going to give you something for nothing. They wait knowing you will make an error in your finances or your judgement and then they swoop in with costly fees to take advantage of your mistake.
How to take advantage of honeymoon credit card rates:
- Know what your interest rate will revert to once the introductory credit card rate ends. Often, this rate is very high which means that if you fail to pay off your debt you may be slammed with rates more expensive then those you had paid before and that outweigh the money you saved by transferring your balance.
- How are your payments applied? If your card, like many, only applies payments to the cheapest debt then you should not make purchases on the new card until you have paid back your balance transfer. You might be lucky and have found a card that also offers no interest on purchases but you it must be for the same amount of time as a balance transfer or you will again pay interest on that debt until all of your balance transfer is paid off.
- If you make a late payment what happens to the honeymoon credit card rates. This is where credit card companies make big money. Most of the time if you make a late payment you lose your introductory offer completely. Then you are charged a high interest rate on your remaining balance which will also jump up due to the fees they charge for the late payment. If the late payment and the fees push you over your credit limit, you can be charged fees in addition to that, too. You can avoid this by setting up a direct draft from your account to pay your credit bill each month on time.
- Shop around for the right terms. There are loads of credit card introductory rates available through a wide variety of banks. A bit of research over the internet can help you learn about all or your options and make the choice that suits your financial needs. This will require you to be honest about your budget and your ability to repay your debt, but it will be worth it. The ability to be free of interest to repay your debts is incredibly valuable.
Also called honeymoon credit card rates, these introductory rates are known for giving you something for nothing. You transfer your balance from an interest accruing credit card and they give you six or nine months of not interest to pay it back. This is a great deal as long as you actually pay it back within the introductory period.
What Happens After Your Balance Transfer Honeymoon Period Is Over?
Understand the importance of clearing your transferred debt before the balance transfer revert rate takes over. Unless you take up a credit card with a lifetime-of-the-debt offer on it, then you will need to understand the balance transfer revert rate.
Making a balance transfer is a popular and effective way to save money on your interest payments on an existing debt. The idea is that you transfer your debt to another card from a different provider and enjoy their introductory offer, usually for six months or a year.
At the moment, there are a lot of twelve month balance transfer offers appearing that are replacing the plethora of six month deals that were the order of the day a few months ago. The old six month deals were generally set at 0%, but these are now very rare, and instead you are looking at six months or a year at 2% to 4%. This means that your transferred balance will be charged at that rate of interest for the specified period, and it is your goal to clear your debt within that time.
If this does not happen, then you will have to deal with the balance transfer revert rate. This is the interest rate that any unpaid portion of your debt reverts to beyond the offer period. Normally it is the regular rate of interest applicable to purchases, but you need to check, because it could revert to the cash advance rate of around 20% instead.
A really good example of balance transfer credit cards are currently offering introductory deals.
The balance transfer revert rate in this case is the standard purchase rate of 12.29%, which is nothing at all to be scared of. In fact, that is one of the lowest regular interest rates around. However, there are credit cards whose standard rates are much higher, and this is when it is imperative that you clear your balance in full in the given time. You cannot assume that you will be able to keep on making balance transfers, forever delaying the day when you actually have to clear your debt. Behaviour of this sort is noted in your credit file and you may have your next application refused. This means you could be stuck with a balance transfer revert rate that is extremely punitive.
The message is to take advantage of the offer period and low rate you are given and direct all available funds to clearing your debt in full before the revert rate takes over.