Posted: February 3rd, 2011 | Author: Joe | Filed under: Credit, Debt, Tips | Tags: 0% balance transfer, Credit Cards, Credit Debt, Debt, getting out of debt, Guest Post | 1 Comment »
A balance transfer credit card is a tool that can be used either effectively or haphazardly as a debt relief solution. A consumer has an opportunity to relieve some of the burden of debt but in many cases, the balance transfer card is too much of a temptation that results in even more debt. Should balance transfer cards be considered a solution to consumer credit card debt?
Here’s a look at how things work:
Understanding Balance Transfer Credit Cards
Credit card companies issue balance transfer cards to a target market of consumers who actively use credit cards. The balance transfer cards typically offer a low (or no) interest rate for a promotional period of time – usually 6-12 months. A consumer can use the balance transfer cards to move existing credit card balances to one card and consolidate the amount of credit card payments they make each month. Provided a card holder can pay off the entire balance placed on the new card at the lowered interest rate within the promotional time period, a balance transfer credit card can be a valuable tool for debt elimination.
Understanding the Risk of Balance Transfers
While the resource can be ideal for some consumers, there are also risks associated using this tactic. Traditionally, using other credit cards to pay off credit card debt has been known to start a vicious cycle of bad debts. However, if there is a sufficient plan in place for effectively paying off the total balance before the low interest rate ends, the benefits are greater than the risk.
It is the temptation that may make balance transfer cards a non-viable resource for eliminating debt. Cardholders that consolidate their balances to one card only have one payment to make each month. They may become inclined to either use their now balance-free card to make more purchases or allocate the ‘extra’ money they have after consolidating payments for other things besides debt elimination. The vicious cycle of spending more than you have is often a big factor for consumer continually in debt. Adding a new credit card to the mix may be a dangerous financial move.
How to Make It Work
If you still have good credit and can get approval for a balance transfer credit card, you must first make some considerations about your finances and spending habits before signing up.
Say you consolidate $3000 worth of balances from several other credit cards. Your low interest rate period of the balance transfer card is 12 months. You have to calculate the outstanding balance divided by 12 months to figure out how much you need to pay each month to be debt free within the year. In this case, you would need to pay at least $250 a month, every month for a year to zero out the balance. You also have to factor in the interest charges on the card each month so add a few more dollars to your monthly payment to account for that. Even if your minimum payment each month is only $75, you need to commit to allocating a full $250-$275 a month to eliminate the debt in time. Resist the temptation to only pay the minimum and spend the rest elsewhere.
Compare Offers
If your credit is good and you have the option of several cards, make sure you check the terms and conditions of each of the balance transfers to find the right one for you. You may be tempted to sign up for the first offer you get, but it is in your best interest to find the card that best suits your lifestyle.
You may be approved for a balance transfer credit card but be cautious of your limitations. You may have $5000 in existing credit card balances but only a $2500 limit. Work out the numbers to see if it is worth making transfers if you can only deal with a portion of your total balance owed.
Stop Spending
Once you have zeroed out your other credit card balances, stop spending beyond your means. A clean slate may be too strong a temptation so consider taking the cards out of your wallet and only use one for emergency purposes – at least until the balance transfer card is also zeroed out.
This is a Guest post from Jeff Weber of SmartBalanceTransfers.com.
Jeff Weber writes about saving money and reducing credit card debt with balance transfers at SmartBalanceTransfers.com, a website designed to educate consumers about 0% APR balance transfer credit cards.Related Posts:
Posted: December 2nd, 2009 | Author: Joe | Filed under: Credit | Tags: 0% balance transfer, Credit Cards, HSBC | No Comments »
I’ve had a high yield, online savings account at HSBC for a number of years now, and I’ve had my share of 0% APR balance transfer offers from credit card companies but this is my first from HSBC.
It turns out that it isn’t really just for me, no matter how special I may think I am. HSBC is offering 5 different types of cards with 0% balance transfer rates. Each card carries the introductory rate for a full 12 months, has no annual fee and covers balance transfers and new purchases.
If you’re in the market for a 0% rate to transfer your debt to while you pay off the balance, then you may want to check out the offer site.
5 different types of cards.
Cash back
This card is geared toward the spender who pays off his balance and wants a little something extra from his card. The reward rate isn’t as good as some others out there, but there’s also no expiration or cap and it’s pretty straightforward.
- 1% cash back on all purchases
- no earnings caps or point expiration
- no complicated spending requirements or tiers
- 0% introduction APR on card purchases and balance transfers for 12 months
- No annual fees
Cash or fly rewards
If you do a fair amount of traveling (I don’t) and want something extra for your hassles, HSBC offers there Cash or fly rewards card. This card is basically either/or – a cash back card or free airfare card. It may be useful if you sometimes travel a lot, but not all the time.
- 1 point for every dollar spent – 25,000 points = 1 domestic roundtrip airfare with a maximum value of $400.
- Minimum points to start redeeming is 7,500.
- Book your own ticket or use HSBC travel agency
- no earnings cap or points expiration
- no blackout dates
- 1% cash back option
- 0% introduction APR on card purchases and balance transfers for 12 months
- No annual fees
HSBC PLUS rewards
This card is more in the mode of a traditional rewards card in that every purchase gets you points and those points are traded in for gifts, flights or hotel costs.
- 1 point for every dollar spent
- redeem points for flights or hotel stays or gift cards
- no earnings cap or points expiration
- 0% introduction APR on card purchases and balance transfers for 12 months
- No annual fees
Platinum simplicity
This is the no frills, no clutter card. Oh, it’s also the no rewards card. Just a 0% intro APR for 12 months. Period.
- 0% introduction APR on card purchases and balance transfers for 12 months
- No annual fees
Secured
The secured card is great for building or rebuilding your credit history. It does have an annual fee, and some other restrictions, but let’s face it – if you need this card it’s because you’re a credit risk to some degree.
- $35 annual fee
- Credit line set by consumer with minimum $300 and maximum $5,000 deposit.
- Online access to account 24/7
- worldwide mastercard acceptance at 25 million locations
One Last Word.
The rate for each card after the introductory 12 month 0% is a variable APR between 12.99% and 19.99%, depending on your credit history. The 0% introductory APR does not apply to cash advances, but those are evil and you wouldn’t use them anyway, would you? No? Good.
Also, don’t default. That goes without saying, right? But just in case it doesn’t, remember that your rate will jump to somewhere between 27.24% and 31.99% if you default.
0% transfer card offers can be a real life line to someone serious about paying off his balance. I used one to stop the interest clock while I paid off my credit card debt and it saved me hundreds (if not thousands).
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Posted: November 4th, 2009 | Author: Joe | Filed under: Credit, Tips | Tags: 0% balance transfer, Credit, Credit Cards, Debt, Tips | 4 Comments »
0% APR credit card offers are certainly a lot more rare than they were a few years ago, but if you’re lucky enough to still qualify for one, you’ll want to go over this check list to see if you’re really all that lucky, or if you’re going to be taken for a ride.
Watch the clock.
Some offers are only 0% for 3 or 6 months, others for 9-12. Knowing how much time is left can mean the difference between hundreds of dollars or more in interest payments.
Know the split.
Some 0% APR offers are only for the transfer balance, not new purchases. And some also state that any payments will go to the transferred balance first! That means every new purchase you put on the card takes a back seat and racks up interest while your minimum payment goes toward the transferred balance.
Watch for an activity clause.
Some offers reset the 0% rate to a much higher “normal” rate if the card is not used for new purchases. Avoid these cards, because there’s no real value in transferring (unless the new normal rate is still less than your current rate).
Know the transfer fees.
Some offers carry a 2 or 3% fee for the transfer. But watch out for a lack of limit. There used to be max charge of $50-75 for the transfer (ex: 3% or $75, whichever is more) but some cards are removing the cap. This could be costly on bigger balances. For example, a 3% transfer fee on a $10,000 balance would be a $300 hit!
Know yourself.
Transferring your current credit card balance to a 0% APR card will only benefit you if you stop adding additional charges, and aggressively pay down the transferred balance while the 0% APR is in effect. By far, the single biggest risk of the 0% APR card offer is that you get lazy and make a late payment, or pile new charges on top of the old ones.
Know where to find 0% APR offers.
If you’re looking for a 0% transfer offer as a way to help dig out from your credit card debt, check the web sites Bank Rate and Lowcards.com.
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Posted: November 1st, 2009 | Author: Joe | Filed under: Credit | Tags: 0% balance transfer, Credit Cards | 1 Comment »
Just last week I blogged about 0% Balance Transfer Credit Cards Offers Finally Coming to an End and darn if it hasn’t come to pass in my household!
Just a year and a half ago, my wife and I were getting 0% transfer offers every week. Then the credit crunch hit. Then the recession hit. Then, finally, the Credit Card Act of 2009 hit. Now the best we can hope for seems to be 0.99% APR.
I know, I know, it’s still cheap money. I just find it interesting that it’s no longer 0% or even 1%.
I see the same thing happening to car loans too. Not too long ago 0% financing (on some models) was very common. Not I see a lot more 1.99% (for qualified buyers). A sign of the times no doubt.
Besides the increased APR, this latest credit card offer is only good for 6 months. The norm was 12 months, a year or two ago. Also, there never used to be a transfer fee on the offers we were getting. Now there’s a 3% fee. No mention of a limit on how much that fee can be in dollars though.
So what does all this mean?
I suppose it means two things.
- 0% transfer offers really are a thing of the past.
- We still have pretty good credit and are sought after customers, because 0.99% is still a great deal.
I’m wondering how many others are seeing these winds of change bringing rates and fees upward.
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