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Balance Transfers: Get the Upper Hand!

14th November 2010

In the current economic climate, many consumers have found themselves low on cash. With Christmas just around the corner, most will be making good use of their credit cards to buy Christmas gifts and deal with other festivity costs, such as food and drink. After using their supply of credit on their credit card and realising they are going to have to pay it back - with interest - many customers panic.

After the shock of the financial crisis, many have lost trust in the banks. Across the media there have been stories of bankers lending frivolously, whilst claiming large bonuses for themselves. Many of the public have decided it is time to get the upper hand on the banks: and for the diligent credit card holder, there is a way which will help them to pay off the money they owe on credit cards at a lower cost.

By carrying out a credit card balance transfer, consumers can reduce the amount of interest they must pay on their borrowed money. The process works like this: in order to attract new customers to their services, many credit card companies offer you the opportunity to transfer your balance from your old credit card account to your new one. Therefore, your new bank is essentially paying your debts to your old bank - so you now owe the money to your new bank. This is quite a complicated idea, but in essence, you are transferring your debts.

You may be wondering how doing this is of benefit to you. Well, your new credit card provider will give you what is known as a 'grace period' upon joining. During this period, they will charge you very little or even no interest on the money you owe. This introductory rate can last for a few months, or even up to a year, depending on the details of the agreement made with the company.

You can capitalise on this deal by carrying it out multiple times. By transferring your balance to another account each time the grace period on your existing account is about to run out, you can avoid paying much interest (or any at all, if you are savvy about it). Potentially, you could go for years without paying back the borrowed money. And why not - it's about time the average consumer got one over the banks.

Of course, care and diligence is required. It is easy to overlook a detail and pay more than you bargained for. For instance, many banks charge a transfer fee. This may be a fixed amount, but it could also be a set percentage of the money you are transferring. If you are transferring thousands of pounds, this payment could be significant. Look out for companies that have a limit on the amount charged in transfer fees to avoid any large losses.

Something else to look out for is whether the bank you are considering transferring to charges any fees other than interest, like a joining fee or an annual fee. These can often be hefty in cases where an extended grace period is offered, or a 0% interest rate. So be careful - avoid being tricked by reading the small print carefully.

If you plan on taking advantage of balance transfer credit cards, bear in mind it takes a diligent person to do so successfully. If this doesn't sound like you, leave it well alone to avoid any monster costs that might come your way. But the benefits of balance transfers can be very useful to those who don't want to pay a debt off right away.