It is very exciting to get an email which mentions that you are eligible for a credit card balance transfer and can transfer high interest rate balances to a lower interest rate. A balance transfer can be the best option to manage your Credit Card debt. However, you need to be very careful before you tread this path. Credit Cards companies marketing brochures or materials do not highlight the balance transfer fee. If you are not alert, you could end up in a worse fiscal crisis than you were earlier.
Here are a few common balance transfer traps you should ward off.
1) Very high fees
The first thing you should understand is that that balance transfer would cost you money. You would be paying a higher percentage on the amount of the balance transferred or a minimum fee. For example, to transfer Rs 10,000 from a credit card, the issuer may charge you 5 - 10 % fee which would be around Rs 500 to Rs 1000. This fee will be added to the new credit card balance for which you will incur interest, along with the rest of your balance.
2) High Rate of Interest
The other drawback, which you should avoid, is the high rate of interest trap. Credit card companies try to allure you into balance transfer offering low or zero interest rate. The low interest rates are only for a few months, which is usually about six to nine months. If you are able to pay the balance during this period, you would be saving money over the high interest rate credit transfer. The problem arises when you do not pay the balance on time. If you do not pay the outstanding debt, your rate of interest shoots up to double digit and at times they are higher than the rate you were paying before the transfer of funds.
3) Payment Hierarchy
The biggest credit card balance transfer traps to avoid is the negative payment hierarchy. These big words mean that all your payments will be applied to the very lowest interest debt, which means that any cash advance or purchases that you make will accumulate interest until you have paid off your initial debt. This is the most common practice among the credit card issuers.
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4) Spending on Old Credit Card
One might be allured to keep spending on the old credit card, which only increases the debt repayments for two cards, thereby increasing one’s problems. You should consider avoiding the old credit card completely until your debt has been paid off.
5) Read the documents
Always read the fine print mentioned in the documents, which can be a blessing in disguise. It informs a credit card user about how the issuer may take your money. You need to read the complete documents carefully and understand the credit agreement in order to avoid being trapped.
A new Credit Card can be of great advantage. However, do not let the marketing companies trick you with alluring offers.
.
Here are a few common balance transfer traps you should ward off.
1) Very high fees
The first thing you should understand is that that balance transfer would cost you money. You would be paying a higher percentage on the amount of the balance transferred or a minimum fee. For example, to transfer Rs 10,000 from a credit card, the issuer may charge you 5 - 10 % fee which would be around Rs 500 to Rs 1000. This fee will be added to the new credit card balance for which you will incur interest, along with the rest of your balance.
2) High Rate of Interest
The other drawback, which you should avoid, is the high rate of interest trap. Credit card companies try to allure you into balance transfer offering low or zero interest rate. The low interest rates are only for a few months, which is usually about six to nine months. If you are able to pay the balance during this period, you would be saving money over the high interest rate credit transfer. The problem arises when you do not pay the balance on time. If you do not pay the outstanding debt, your rate of interest shoots up to double digit and at times they are higher than the rate you were paying before the transfer of funds.
3) Payment Hierarchy
The biggest credit card balance transfer traps to avoid is the negative payment hierarchy. These big words mean that all your payments will be applied to the very lowest interest debt, which means that any cash advance or purchases that you make will accumulate interest until you have paid off your initial debt. This is the most common practice among the credit card issuers.
.
4) Spending on Old Credit Card
One might be allured to keep spending on the old credit card, which only increases the debt repayments for two cards, thereby increasing one’s problems. You should consider avoiding the old credit card completely until your debt has been paid off.
5) Read the documents
Always read the fine print mentioned in the documents, which can be a blessing in disguise. It informs a credit card user about how the issuer may take your money. You need to read the complete documents carefully and understand the credit agreement in order to avoid being trapped.
A new Credit Card can be of great advantage. However, do not let the marketing companies trick you with alluring offers.
.