Racked up a sizable credit card debt over the last few months? Considering the use of a low-interest balance transfer to buy some time? While it doesn’t make your debt disappear, a balance transfer can be a short-term solution. In essence, it helps you stay afloat… As long as you understand the details.
Before getting into the nitty-gritty, however, here’s a quick recap of how things work…
How does a balance transfer work?
A balance transfer allows you to transfer some or all of your existing credit card debt to a brand-new credit card. Many credit card companies offer a promotional low (or zero percent) interest rate for a limited time period (usually no more than 24 months). They essentially pay off your old credit card debt and roll the outstanding balance over to a new card, meaning you don’t have to pay back anything until the promotional period expires.
Balance transfers
Caution – The devil is in the detail
Before letting yourself get seduced by a lower interest rate, there are a few things to consider. Remember that a bank or credit card company isn’t giving you a low-interest balance transfer out of the goodness of their heart.
As a business, their goal is to make money. In fact, they’re actually gambling that you won’t be able to pay the balance off within the given timeframe… Ready to prove them wrong?
Here are the important details to be aware of:
- It’s essential to read the terms and conditions and ask for clarification on anything you’re unsure of. Of course, the small print is dull! But persevere and remember that three minutes of concentrated reading can save you a lot of time, stress and money in the long run.
- Even though credit card companies repeatedly go on about low-interest rates, there’s probably a sizeable fee somewhere. Be aware that this can be up to 3% of your balance.
- We usually recommend that you don’t use your new credit card, as this can perpetuate debt. If you must use it to make purchases, always check the interest rate first.
- The credit card provider may try and sell you additional benefits, such as insurance or fraud protection, that you may not even need. Never buy anything on the spot. If you feel pressured by a salesperson, always take time to think it over before committing.
So, how useful is a balance transfer? If you play the game correctly, it can be a great short-term solution. If you transfer your balance and pay off the debt within the given timeframe, then even better. Always read the small print though! If, however, you find your credit card debt spinning out of control, then you may have a deeper problem to solve. If this is the case then don’t worry, you’re not alone. Did you know that in 2015, 29% of Aussie households were classified as over-indebted?
At Life After Debt ®, we understand that things are extremely complicated when it comes to credit cards and money in the modern world. If you find yourself struggling to stay afloat financially, then we’re here to help and provide sympathetic advice, without judgement. Call us today for your free debt solutions assessment.
Read the small print