Low or zero-interest balance transfers are great in theory. You can take the credit card debt that’s been weighing on your mind, transfer it, and quickly pay it back to your new card provider within the nominated promotional period.
But (and there’s always a but) - can you be disciplined enough to do that in time? Bearing in mind that the banks WANT you to fail so they can trap you in their endless interest cycle.
Here are some Dos and Don’ts of zero-interest balance transfers that will help you beat the banks at their own game.
- Do cancel your old card. Cut it up, and contact the bank to make sure it’s cancelled so it won’t attract any more fees or charges.
- Do look into the minutae of your new card. In particular scope it for fees, charges, interest rates and minimum monthly payments. MoneySmart outlines examples of fees, including annual account-keeping fees, late payment fees and even a balance transfer-handling fee when the new card is set up. These could very quickly negate any savings you’re making from the transfer.
- Pay it off within the introductory period. You’ll need to set a realistic budget, so you know the maximum amount you can dedicate to the task; and you’ll need to automate a direct debit so you don’t even have to think about (or pine for) the money going out.
- Check exactly when your balance transfer period starts and ends. It may start on the date when your application is approved, rather than the date the card is issued, which could leave you with fewer days in your honeymoon period than expected.
This is what the bank is hoping you’ll do, which is why they accepted your application in the first place.
- Don’t keep spending on the new card! This is what the bank is hoping you’ll do, which is why they accepted your application in the first place. Any new purchases will usually attract the default interest rate of the new card (which might be quite high), not the special rate that attaches to your transferred amount. Also note: the payments you’re painstakingly making to pay off that transferred balance will instead go to repaying the extra stuff you’re buying at the higher rate. Continuing to purchase on the card means you erase the benefit of the transfer.
- Don’t get sucked into a higher credit card limit. With your new provider you’ll often end up being assigned a credit limit that is higher than you need or want. Don’t just accept this. Contact the provider, confirm the limit they’ve given you and change it as required.
- Don’t go for gimmicks. Before being swayed by the rewards points, cash back offers and free travel insurance that are attached to some cards – do your homework, because you might never use them and they’ll probably mean higher interest rates.
- Don’t keep balance transferring. If you change over to a new zero balance card every time the free period is up, or apply to more than one provider at once, it will become part of your credit history and potentially affect your credit rating. So some time in the future when you really need it, credit might be refused.
Financial stress isn’t something you need to deal with alone. Take advantage of the resources offered by Bees with Honey to better understand and get on top of your finances. And if you need additional support, don’t be afraid to raise your concerns with your employer.