Beware of credit card offers when transferring a balance

                                                                                         

You should beware of credit card companies offering new deals in the New Year, especially if you’re thinking of transferring a balance from another credit card.

Take this example

A credit card company is launching a new credit card – we’ll call it ‘credit card A’, they say it’s the best 0% deal available from today, etc, etc….

• 0% for 13 months on balance transfers (3% BT fee)
• 0% for 6 months on purchases
• A typical APR of 15.9%

The same credit card company has a card on offer already, we’ll call it ‘credit card B’, offering the following;

• 0% for 12 months on balance transfers (3% BT fee)
• 0% for 12 months on purchases
• A typical APR of 15.9%
• No annual fee

You successfully apply for ‘credit card A’ credit card as opposed to ‘credit card B’ because you think it’s a better all-round deal as the credit card company has said.

Then, over the next few months you make purchases with the card and the rate is 0 per cent for 6 months. After 6 months the money you have spent will be charged at 15.9 per cent APR Typical.

However, any payments you make will still be paying off the balance you have transferred and not the purchases made. Unless of course you manage to pay off the entire balance transferred.

This is because the credit card company will be making 15.9 per cent Typical APR from the purchases you have made and they want this debt to stay on the credit card for as long as possible, so they make more money in interest charges. Therefore the credit card company will reduce the balance you have transferred until it is paid off before the purchases are repaid.

If you don’t spend anything on the card then it makes no difference, infact the ‘credit card A’ is probably a better option because you have 13 months rather than 12 months 0 per cent on balance transfers. But with the best will in the world how many of us actually NEVER spend a penny on the new credit we’ve got because of a 0 per cent balance transfer rate??

About the author:
Simon Duffy writes for the Financial Blog a UK Finance Blog talking about all aspects of personal finance including loans blogs, credit cards blogs, mortgages blogs, insurance blogs and more.

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