One of the most popular types of credit cards over the past few years is the balance transfer credit card. As consumers in the UK have acquired credit cards in record numbers, the credit card issuing companies have found themselves in the position of having to entice customers to switch cards in order to keep increasing their business. The original idea was a good one, based on card loyalty and inertia. The reasoning was this: get people to switch credit cards by offering them a low interest rate to transfer their current balances from other credit cards. Once they’d made the switch, they’d stay with the new credit card company after the introductory rate was ended, gaining a long term customer for the company.
The only problem with the scenario was that all the credit card companies jumped on the balance transfer bandwagon, and before long 0% balance transfer offers were competing with each other for the same customers. Some consumers saw an opportunity to ‘park’ their money without paying interest on it, jumping from one 0% balance transfer card to another when the introductory rate ended. This might have spelled the end of the 0% balance transfer card – but the credit card companies knew when they had a good thing. Instead, the balance transfer offers have mutated, changing to offer low or no APR on balance transfer amounts, but slipping in protective clauses to prevent the card jumpers from parking amounts just long enough to wait for the next good balance transfer offer.
If you’re considering transferring the outstanding balances on one or more of your cards to a balance transfer credit card, it’s more important than ever to compare credit cards before making a decision. A few years ago, a 0% balance transfer offer was a 0% balance transfer offer. The only real difference between offers was the length of time the introductory rate was in force. It was easy to compare credit cards then – how long does the 0% rate last and how much will it cost me when it ends?
These days there’s a bit more to it when you compare credit cards. Here are some points to look for when you’re choosing a balance transfer credit card.
1. What is the introductory rate and how long does it last? While there are still many 0% balance transfer offers around, the intro rates tend to be far shorter. In contrast, many credit card companies now offer introductory APRs from 4%-6% that last for the entire life of the balance transfer. In other words, if you transfer £500 to one of these cards, you’ll have a 4% APR until you pay off the entire £500.
2. What other conditions apply to keeping the introductory rate? One thing that the credit card companies didn’t figure on was people moving their balances to 0% transfer cards – and not using the cards to charge other purchases. To counteract that, many balance transfer offers now require that you make minimum purchases on their card in order to continue to qualify for the low introductory rate. When you compare credit cards, be sure to compare what it will cost you to keep your introductory rate.
3. What APRs are charged for other purchases? This becomes important because of the way that your payments will be applied: first to interest charged on other purchases, then to your transferred balance and finally to the purchases that you make with your card. That means that if you charge a £10 purchase on your card, it will sit there and continue to accrue interest until the entire transferred balance is paid off.
One mistake many people make when they transfer their balances to a low interest card is to start using their other cards again. If you do this, you’ll end up in double the debt. If you miss the convenience of paying for your purchases with plastic, you might consider a prepaid credit card, which will give you the convenience and protection of using a credit card without running up your debt. You can compare credit cards and find a good prepaid credit card at comparison websites where you’ll find everything you need to make informed decisions about your credit and finances.