Balance Transfer Management: How to manage a new credit card after you have done a balance transfer
Posted July 30th, 2012 and last modified March 5th, 2013If you are about to make a balance transfer onto a new credit card then well done – You’ve taken a big step towards clearing your debt.
Here’s some tips on how a balance transfer works, and how to get the most from your new balance transfer card.
How Much Can You Transfer
The first thing you need to know is that most providers don’t allow you to do 100% balance transfers. Currently you can transfer up to 70%-95% of your outstanding debt. In other words, in the instance where you owe your previous lender $1000, you can transfer up to $950 of it onto your new credit card with some lenders.
The Promotional Rate is Temporary
The main benefit of a balance transfer is saving money in interest. When you sign up to your new credit card you’ll receive a special low balance transfer rate.
Balance Transfer Offers
Once your low rate period is over any unpaid balance will begin accruing interest at the cards standard variable rate. Make sure you know exactly how long your low rate period is, and try to repay the balance in full by then. You’ll find most promotional periods last between 6 – 15 months.
No Interest Free Days
You won’t get any interest free days on a balance transfer card, so bear this in mind before you start spending with it. You won’t be entitled to any interest free period until your transferred balance is repaid in full. Ideally you shouldn’t use your balance transfer card for purchases at all until then.
If you do use your credit card before the balance is repaid there is some good news. New credit card regulations mean any payments you make towards your balance will be allocated to the most expensive part of your debt. In the case of a balance transfer card that will be any purchases made.
What Happens Once My Promotional Rate Ends?
At the end of your low rate period your interest rate simple returns to the card’s standard variable rate. Any outstanding balance will be subject to interest at the higher rate, as will any purchases.
The only way to avoid the higher rate of interest is to repay the balance in full before the low rate period ends. A good way of doing this is to divide your transferred balance by the amount of months you have at the low rate. This tells you how much you need to pay each month to clear the balance in time. Try to set some money aside to help you during months where meeting your target is a struggle.
Even if you find a little of your transferred balance remains once the low rate period is over don’t worry – you’ll have still saved yourself a bundle on what you’ve paid so far.
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