Credit cards have become a fact of life. They’re simple, convenient, safer than carrying cash and they are a great way to spread payments across time. Most of us apply for a card with the intention of paying the balance off each month, but it isn’t always possible. The truth is, credit card companies make their money from charging interest on our outstanding balances, many of them by charging high annual percentage interest rates. Before deciding on which credit card offer to accept find more out about the balance transfer credit cards that allow people to pay off a credit card balance over time, but at better rates than their regular card is offering.
How to Resolve Your High Balance
Opening a new credit card may seem like an odd thing to do, when you’re already facing rising payments on the ones you have. But if you consider your options carefully, it can make good financial sense and save you money too.
As with anything which involves your money, it really pays to do your homework. The many inviting credit card offers you receive through email, or via direct mail may look tempting, especially as many of them offer prominently displayed ‘zero’ figures.
The first thing to look at is the introductory offer. Zero percent for a fixed period may seem attractive, but the key is to check how long that offer lasts. If you know you’ll be able to pay off the balance in the time available, it may be right for you, but if you don’t, you may find that when the introductory period ends, the rate higher than the rate you were paying on your old card. Additionally, you need to add up the amount of interest you will save over the zero period offered. If you’re working with six, or even three months, often the amount you save hardly justifies the new offer, given there are other costs associated with opening a new card account.
An alternative, for those with balances they are not planning to pay off in a short time, would be to go for a fixed APR balance transfer card which offers a lower rate than you have been paying, but for a much longer time.
Choosing the Best Credit Card Offer
So having decided which type of credit card offer you’re looking for, you need to look at the other costs associated with a new card. Some cards charge a mandatory annual fee, others will waive it as part of their introductory offer, but it’s worth noting whether this waiver is permanent or merely for the first year, so as to avoid a nasty shock on your statement after the first twelve months.
The other cost to consider is the balance transfer fee. With the rise in popularity of the balance transfer credit card, the card companies are making more and more money from the transfer itself. It’s common to find transfer fees of up to 5% of the balance to be transferred, so this needs to be offset against the interest you are saving on the deal.
As we all use credit cards more and more, we’re all building up a record of our financial behaviour, and this information is constantly updated and used by other credit companies, to assess whether we are a good risk or not. Your credit history is important, and the effect of making balance transfers and other credit card deals should not be taken lightly. Transferring balances onto new cards frequently can adversely affect your credit rating, as can transferring to cards with lower balances, because the amount you owe will then represent a larger percentage of the amount the card issuer is prepared to lend you. Additionally, with every card you hold you are building up valuable history, so repeatedly opening and closing them can also reduce your credit rating.
Improving Your Credit Rating
So how do you improve your credit rating? Well the main thing is, as you would expect, to pay your bills. Utility bills, hire-purchase payments, store card payments and prompt monthly credit card payments all contribute, as does steady, regular income. A point to remember about credit card offers on store cards is that they are usually fairly easy to get, and can help you establish a credit history before applying for a credit card, but they are not generally a good idea in the long term, as they invariably levy very high interest rates, and don’t offer the flexibility you might look for in terms of shopping around for best-value items.
There are a couple of solutions for those who want to use a credit card but don’t yet have the credit history to be offered one. Prepaid cards, which can be bought in some stores, allow you to buy credit in advance. This can be a good idea as it can add to your credit history but as the issuer will charge commission, they may not always be the best value. Instant approval cards are another option, the advantage being that when you apply, usually online, you will know immediately if you qualify. However, as with other options which look attractive at first, it’s important to remember the interest rates on these cards tend to be a lot higher than regular credit card offers for lower credit limits.
Cashback, discounts and loyalty points, milestone bonuses and airmiles all look great when they’re offered, apparently free, by your card. But be sure they are rewards you really want. Check out any time limits, and caps on the amounts you can achieve and ask yourself, are airmiles or store vouchers useful enough to you, to warrant opting for a card which may be less attractive in terms of interest rate or interest-free balance transfer period? And if you do get bonuses like this – read the small print to be sure you make the most of them. After all, if you’re the making your credit decisions carefully and wisely, you deserve the rewards.