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Balance Transfer Credit Cards - Are They Still A Good Deal?

Aug 17, 2007
There's been a lot of press lately about the demise of balance transfer credit cards. The reports of their death, to use an old quote, have been greatly exaggerated. Balance transfer cards have changed considerably, but they're far from gone and not likely to be going anywhere anytime soon. If you've been considering cutting your interest payments by transferring the balances to one with a special balance transfer deal, here's what's going on in the world of balance transfer credit cards.

For years, credit card companies were able to build their business by enticing new customers from the ranks of those who'd never held plastic before. But with the numbers of cards in circulation rising and the average Brit carrying four different cards in his or her wallet, they've had to get competitive with each other. Thus was born the marketing tactic of offering 0% interest for any balance transferred from a competitor's card to a new card.

Those 0% balance transfer deals were greeted enthusiastically by the public - a bit more enthusiastically than the issuers of those cards expected. They missed a vital point in their calculations - customers who switch cards for a better rate of interest have already given up brand loyalty in the interest of getting the best deal. When the 0% interest ran out, they simply moved their remaining balances to another card. To counter that, the big companies started modifying their offers with restrictions designed to keep people from jumping from card to card following the best rate.

Some of those restrictions are openly stated and easy to see - reductions in time on the introductory rate, for example. Others are hidden in the conditions and terms of your credit agreement. Those 'traps' make it all the more important to carefully compare balance transfer credit cards before you move your carried balance from one card to another. It's still worth your while to check on the newest balance transfer offers a couple of times a year, say the money experts, but be sure to compare the offers before you jump from one card to the next.

Comparison sites make it easy to find all the newest and best balance transfer deals and compare them with each other. When you check into the offers you find, read the terms and conditions of each balance transfer option for the following things:

- What is the APR on your transferred balance and how long does it last?
There are very few 0% balance transfer card deals left, but there are a few. The 0% APR on transferred balances may last for three months, six months, nine months, or in some cases for the life of the balance transfer amount. More often, the APR on your transferred balance will be a low 1-2% for the life of the balance, as long as you conform to certain restrictions.

- What is the APR on new purchases?
Many of the new balance transfer offers require that you use your credit card to make a certain number of purchases per month. This is because the lowest interest rate only applies to your transferred balance. Any new purchases will be subject to a higher interest rate more in line with typical APRs on other credit cards. In addition, any payments that you make will be applied to your transferred balance until it's paid off. That means that your new purchases will sit on your card accruing interest at a higher rate until your entire transferred balance is paid down.

- What are the requirements to keep your low balance transfer APR?
Most cards no require you to make at least some purchases each month to keep the APR on your transferred balance. In some cases, the card agreement will specify a number of purchases without specifying an amount. In others, it will specify an amount that must be charged against your card, and in some cases, it will be both a number and an amount. Remember that those amounts will accrue interest until the balance transfer amount is paid off and choose a card that requires the least amount of new purchase debt.

- What's the balance transfer fee?
Another big change is in the structure of the balance transfer fee. Until recently, most balance transfer options had a cap on the balance transfer fee - a percentage of the transferred balance up to 50, say. Now many have dropped the cap in favor a straight percentage. Before you choose a balance transfer credit card, be certain that the transfer fee doesn't cost you more than the interest that you'd pay on your current card.

Balance transfer credit cards still exist, and will for years to come - but the terms are changing, and will continue to change as the companies plug holes that allow consumers to use them in ways they didn't anticipate. Keep your eyes open for new balance transfer opportunities, but be sure to check them carefully for conditions and traps.
About the Author
Jon Francis has been involved with finance for many years! With an in-depth knowledge of the credit card UK market help helps others get the best from a credit card.
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