Credit Card Balance Transfers Can be Dangerous
Balance transfer credit card offers can be a very helpful thing when you are restructuring your current debt level. If you read the about us page of this website you will know that I had the experience of having my families budget get out of control because of the way we used credit cards. We fell into some of the classic balance transfer credit card traps and in this post we will examine exactly what those financial traps are. Wherever you live in the western world most banking groups in your region are using a similar tactic to grow their credit card customer book. Large banking groups use advertising either online or with more personalised mailbox marketing to offer credit card balance transfers. Usually the lower percentage interest rate offers are only for customers that switch from one lender to another and transfer the debt across. The secondary tactic banks and finance companies use is to target new or existing customers with the offer of an introductory interest rate for a set period of time, usually six months and occasionally as long as twelve months.
Should you think about a balance transfer?
The experience that we had was based around transferring a visa card debt of ten thousand dollars over to a Citibank card offer at a very low rate of one percent. The good part about taking up the transfer offer was that the one percent was fixed for life and the initial transaction save us a great feeling of satisfaction. The positives about taking up the offer were firstly that the ten thousand dollars we owed visa was being repaid at an interest rate of eighteen percent and secondly that the transfer rate of only one percent was fixed for life.
Reading this you are probably wondering how this transaction could have any negatives so I will explain. When Citibank approved our loan interest balance transfer they approved and put in place a twenty five thousand dollar credit line. In the first instance our aim with the ten thousand balance transfer was to pay down the balance as quickly as possible and take advantage of the seventeen percent interest rate saving. The fact that the one percent offer was only one percent interest for life was great but the additional fifteen thousand that we now had access to on our Citibank credit line was offered at a huge twenty two percent. We never did pay back the ten thousand and over the next three years ran our city bank credit card up to the maximum of twenty five thousand dollars.
Balance transfer credit card offers can be clever financial plans if you follow a few simple rules.
* transfer a balance from a high interest rate to a low one
* Reduce your new approved limit with the new lender to match the transferred amount. You must do this a day after the transfer occurs to avoid temptation * set up a direct debit to pay the transfer amount, ideally weekly. * set the direct debit up at a realistically low amount so that you will not be tempted to cancel it. * make sure the transfer offer is a lifetime one not just an introductory period * Do not leave a high limit credit line in place for a rainy day. I promise you that the day will come quickly and your rising debt will also.
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