What you need to know about credit card balance transfers

Credit cards need no introduction. Right from a student to an adult everybody uses credit card in some form or the other. A student may use the credit card to pay for his bills or for buying his necessities. An adult may use it to pay for his utility bills and other daily requirements. Some people may use the credit card for extravagant purchases as well. For whatever reason the credit card may be used, the fact remains that they have become an integral part of our daily lives. With competition increasing in the credit card market and the interest rates falling by the day, many companies are coming out with offers to attract customers. Companies to attract customers are coming out with offers like 0% interest on APR or 0% interest on balance transfer. Balance transfer is the transfer of balance or outstanding in one credit card to another credit card.

Advantages of balance transfer

It is an efficient tool to manage our finances. People in financial crisis can use it as an effective tool to postpone payment to credit card companies.

People can also save money because if they are not able to make payment to credit card issuer, then they are charged late payment interest and penal charges. With the help of balance transfer such charges can be avoided.

There are certain things that you should bear in mind before you request for balance transfer:

Fees

Most companies today charge a balance transfer fee for transferring any outstanding balance from other credit cards. This could be a flat fee or it could also be a percentage of the amount borrowed. It is very important that we analyze what transfer fee we are paying and what is our actual financial benefit on balance transfer.

Interest Rate on Purchases

Some credit card companies may attract customers by charging no interest on amount transferred. This policy of no interest is usually applicable only on balance transfer and not on purchases made. Any purchases that we make is chargable at normal rates of interest.

Allocation of Funds

When you take a balance transfer find out how the allocation will be made when you make the monthly payment of your credit card bill. Let me explain the importance of allocation with an example. Suppose you have taken a balance transfer from your credit card company of 500 dollars. You are required to make a monthly payment of 100 dollars towards you balance transfer. You spent 200 dollars on the credit card on which you have taken a balance transfer. When you receive you statement you find you have 700 dollars (500 dollars form balance transfer + 200 dollars from purchases made) outstanding in your credit card. You assume that you have to pay 200 dollars towards your purchases and 100 dollars towards your balance transfer outstanding. So you pay 300 dollars to your credit card company. When you receive the credit card bill for next month, you will be surprised to find out that the entire amount you have paid will be adjusted towards your balance transfer, and you will be charged interest and penalty charges on 200 dollars (purchases made by you). Therefore it is very important to understand how the credit card company will treat any amount paid by you.

Balance transfers are a useful instrument in managing our finances but it is equally important that we understand the terms and conditions of balance transfer.

Source: http://www.ArticlePros.com/author.php?Mike Jarocki

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