Balance Transfer Credit Cards – Out of the Frying Pan Into the Fire?

Make sure that if you are looking through balance transfer credit card offers that you are not jumping out of the frying pan into the fire!

What I mean is that it's all well and good getting a great offer that gives you a rock-bottom interest rate for the introductory period if you are sure that you can pay the transferred balance off within that time frame, but if you can't you may end up paying a higher interest rate than you were paying previously.

The introductory interest rates normally last around 6 months or 12 months, so you'll need to assess the likelihood of you being able to pay off the amount in that time-frame; if you’re not confident of that being possible then perhaps it's best to avoid the card and look for one with a longer introductory rate, because in Australia most introductory balance transfer rates tend to revert to the cash advance rate after the period expires – and that's a rate that's often around 21 or 22%!

Another potential problem with balance transfer credit cards is that some people are not disciplined enough financially not to make new purchases on the card. Even if the card advertises an interest-free period of, say 55 days, this may only apply after your balance has been clear for 2 consecutive months and in any case it will not apply until you have paid off the full balance of the transferred amount. That means that you are paying interest on new purchases from the first day.

Connected to this is that if you make a purchase on your balance transfer card you will not be able to start paying this amount off until you have paid off the transferred balance in full. This means that you will accumulate quite a lot of interest. The best strategy on balance transfer credit cards, therefore, is simply not to spend.

Another factor to build in is whether or not there are any charges to make the transfer. Often in Australia this charge is waived and there was even talk of it being made illegal to charge it.

Balance transfer credit cards can be god-sends for people who have got themselves into some credit problems. But they are best suited for those that are honest and disciplined enough financially to know what they can afford to pay back and in what time-scale, who check statements regularly and watch the dates so they know when offers expire and also who are not tempted to go on a spending spree with their new card.

For more information regarding balance transfer credit card offers, business credit cards and credit card comparison, please visit: www.lowerbills.com.au