Five Tips For A Successful Balance Transfer
Think balance transfers are piece of cake? Here are five tips to ensure you don't become a victim of the balance transfer blues.
January is traditionally a busy month for balance transfers, and many of us have been getting our act together and shifting those toxic credit card debts to better deals.
But what's the formula for a successful balance transfer? After all, it may sound simple, but when you take into account all the fees and fine print, it can be more complex than you think.
Here's a step-by-step guide to ensure all goes smoothly:
1.) Bewildering brands
The first thing to remember when applying for a balance transfer is you're not allowed to transfer debts between cards issued by the same company.
So, I wouldn't be able to shift debts from a Halifax to a Bank of Scotland card, or from a Co-op card to a Smile one.
However, it's often unclear which companies issue which cards, and you could fill in an application only to find that you don't qualify for a promotional transfer after all.
Thankfully, Cliff D'Arcy is on hand to differentiate the Barclaycards from the Bank of Irelands, and lists which cards belong to which providers in Baffled by the Brand.
So before you even start applying, check the card you're applying for belongs to a different issuer than the one you already have.
As well as checking the brand, the next thing you should consider is how flexible the credit card is.
One added feature some cards possess is the ability to transfer part of your credit limit straight into your account - as a cash or money transfer (not to be confused with cash advances, which are very, very expensive).
In this way, you could use your credit card to pay off an expensive loan or overdraft, while still enjoying the same promotional 0% interest rate as you would on standard balance transfers.
Currently, all MBNA cards (including the current market leader, the Virgin Money MasterCard) offer this facility, as well as the innovative Visa card from Egg, and is a feature worth bearing in mind if you're looking for flexibility.
In addition, the tightening of credit crunch squeeze has meant fee-free balance transfers have now all virtually disappeared. You can now typically expect to pay a 3% upfront fee on all balance transfers, which, as Neil Faulkner highlights, could end up costing you more than you bargained for.
3.) Customer service
Customer service is becoming an increasingly important factor when it comes to credit cards, with several readers highlighting giant MBNA as a repeat offender when it comes to underhand tactics such as increased monthly payments and fluctuating payment due dates.
For a fair assessment of one of MBNA's most popular credit cards, the Virgin Money MasterCard, and some insightful reader experiences, read Serena Cowdy's balanced review, which sifts through the good, bad and ugly parts of the deal.
4.) Negative payment hierarchy
So, you've managed to transfer the funds you want, where you want them. Now it's time to learn about negative payment hierarchy.
Credit cards which operate negative payment hierarchy allocate payments to the cheapest debts first. So, if I transfer a balance onto a 0% balance transfer card, make a £100 purchase on the same card, then make a £100 payment, this payment will go towards the interest-free balance I have just transferred, and not my £100 purchase (which starts racking up lots of interest).
All cards except Nationwide and Saga operate in this way, so if you don't have one of these cards, keep all you purchases separate - or you will end up with an interest bill you won't be able to get rid of until you pay off your promotional transfer.
Cards with uneven promotional periods, such as those which offer 0% for 12 months on balance transfers, but only 0% for three months on purchases are particularly guilty of negative payment hierarchy, and should only be used for one purpose only - either purchases OR balance transfers.
Alternatively, you could opt for a credit card which offers an equal 0% period for balance transfers and purchases.
As the transfers last the same amount of time, it doesn't matter how the payments are allocated within the promotional period, so you can forget about the worries of negative payment hierarchy.
5.) Keep up your payments!
After all bases are covered, perhaps the most important thing you need to remember is to make payments on time. Not only do missed payments have a negative impact on your credit record, but just one mistake could result in the lender taking away your promotional deal and replacing it with their standard (and hideously expensive) rate of interest.
If this happens, the first thing you should do is phone your credit card provider to explain why you missed the payment and ask if they can reinstate your 0% deal. After all, we all make honest mistakes, and you have nothing to lose by contacting them.
If you're slightly less organised, it's a good idea to set up a direct debit to automatically make the minimum payment each month, or sign up to your card's online service, which will ensure that your balances are never more than a few clicks away.
So, that was my lowdown on balance transfers. Of course, there are no hard and fast rules to the balance transfer game, but follow these five steps, and you should be well on the road to a successful balance transfer!
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