Own several credit cards? Here's when to say 'yes' to balance transfer

ABS-CBN News

Posted at Jan 27 2014 11:51 AM | Updated as of Jan 28 2014 06:05 PM

MANILA, Philippines - If you own more than one credit card, or if you’re being offered another one, you have most likely been offered a balance transfer scheme with the promise of attractive interest rates. Most card companies offer balance transfer programs, and market these to attract new customers.

Credit card balance transfers are a good financial tool for lowering your interest rate expenses and for consolidating multiple debts. A credit card balance transfer allows you to move the amount you owe in one credit card account to another credit card company.

For instance, you have an outstanding balance of P30,000 in Credit Card A. If you could not pay the whole amount when it falls due, you will be paying an amount higher than the minimum amount due, let’s say P10,000, and rolling off the balance of P10,000. In so doing, you will be paying an interest on the P20,000 plus the purchases you will be making after that.

In a credit card balance transfer, you can take the whole balance of P30,000 and transfer it to another credit at their balance transfer rate, which is usually lower than the regular interest rate. You will be asked to pay the balance in equal and successive monthly payments, within a time period chosen from the time of your application. The interest for this period is fixed from the beginning.

As you can see, the total amount you will be paying off under the balance transfer scheme can be less than keeping the amount on your credit card if you choose the right terms. It can help ease your cash flow, and allow you to better plan your budget.

Use credit card balance transfers judiciously. When used correctly as part of a financial plan, credit is a smart tool to attain your objectives. But when used whimsically, it can throw your budget out of whack.

A credit card balance transfer is usually not an additional credit line, so it is best to check with your credit card provider if you have concerns about your credit card limit. This facility simply affords you lower interest terms, and fixes your payment period. When availing of it, your object is to improve your cash flow or make your credit card payments more predictable, not expand your credit line.

If you are thinking of availing of the credit card balance transfer feature of your card, here are some notes to remember:

Understand interest rates.

Credit card companies usually offer an add-on rate. Loans with add-on interest are paid in equal installments every month, with principal and interest payments staying constant monthly. Feel free to ask for a computation using the balance you are considering to transfer as well as payment period, say 12 or 24 months.

Look at fees.

Credit card firms typically charge fees for transactions of this nature. Make sure that you perfectly understand the costs involved, not only for making the transfer, but for other issues such as late payment or early repayment. Some card companies may consider waiving the fees to get your business – so you should explore this too.

Pay on time.

Note that if you don’t make your credit card payments on time, there will be additional finance charges. These extra charges may negate the savings you have made in making the balance transfer or worse, make it higher.

Compare and compare.

Scan the market and compare rates. Don’t jump at the first offer you receive. Check out what others have to offer in interest rates and payment fees before making your decision. Make sure you also read the terms and conditions so no surprises down the road.

Be organized.

Sometimes, balance transfers are offered by credit card companies looking for new cardholders. If you sign up with one, that means you will have an additional credit card to maintain. Make sure that you do not confuse your payment schedules with the addition of a new card.

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