Balance transfers are a great way to save money, however, in some cases they can end up costing more if you are not careful.
Balance transfers are ultimately a strategy used by credit companies to tempt new customers offering either 0% or a low interest rate for a fixed period of typically 6, 9 or 12 months or sometimes a little longer. Obviously credit card companies do not receive interest on the balance during this period but they hope the customer will continue to use the card once the 0% offer has ended.
Aside from this, there are a few ways that credit card issuer can make money out of you even during the balance transfer period. Firstly, as many people are aware, when the balance transfers started getting more popular, an admin fee was introduced and as the the 0% periods have grown, the admin fee has crept up too. Make sure you take this into consideration when working out any potential saving.
Another additional cost is a as a result of spending on your balance transfer card as the majority of card issuers are set up to pay off the non interest bearing or low interest bearing balance first. This means that if you balance transfer say £1,000 at 0% onto your card, then you spend £500 on the card (which has no 0% purchases offer or the purchases offer has finished) you have a total balance of £1,500. Of this balance, £1,000 is at 0% and £500 at the typical APR e.g. 15.9%. When the statement comes in, if you chose to pay off £200 then that would be taken off the 0% balance and you would still be paying the interest on the full £500.
With this in mind, the key point is to not spend on a 0% balance transfer card as it will cost you more. Their are plenty of 0% purchases cards about so it may be worth considering applying for a second card if you are going to make purchases.
> Click on the link to compare some of the best 0% balance transfer credit cards
> Click on the link to compare some of the best 0% purchases credit cards
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