Most people know that using a credit card balance transfer to reduce debt can be an effective way of keeping a handle on your finances. However, though making use of one of the many credit card balance transfer 0% interest offers on the market can help the savy debtor save money on interest charges while repaying the bulk of their debt, if used incorrectly, they can end up costing you more money than they save you.
So how can you learn the ins and outs of utilizing the credit card balance transfer offers without being slammed with all sorts of hidden costs? Read on to learn saavy debtors secrets!
It's true that credit card balance transfer can help - but only if you don't use your new card for purchases. Most lending institutions, with the exception of Nationwide, will use any repayments made to pay down the original balance that was moved onto the card first - leaving your new purchases to accrue interest until you've finished paying off the initial debt. This can be very costly indeed, and depending on how fast you are able to pay off your old balance, the accruing interest on your new purchases may in fact cost more than the interest would've been if you'd stayed with your old card.
In addition, some banks or lending institutions have 0% interest offers that also include 0% interest on purchases for a period of months. This naturally encourages consumers to spend, perhaps making larger purchases than they would otherwise. Provided that you are able to pay down your original debt in within the period where you don't have to pay interest on purchases (usually 3-6 months depending on the lending institution), you'll be fine, and will simply move on to paying interest on purchases. But if you can't pay off the original debt in time, you'll end up with hefty purchases accruing interest while you struggle to pay off original debt.
Make sure that if you take advantage of these offers, you use them only for debt repayment instead of purchases - and they can be excellent tools for debt management!