Balance Transfers
If you already have a credit card and you feel that the interest you are paying monthly is just too high then you have the option of opening another credit card account and transfering the balance from the existing card to a new credit card which has a lower rate.
Generally speaking balance transfer rates start at around 0% and are set for a time limit period, usually between 6 and 12 months. These balance transfer rates are promotional rates and not the credit card companies typical rate.
The balance transfer rate is the percentage number that credit card companies like to show us first in any advert! However, you should also take note of the 'Typical APR' Rate on displayed too. The typical APR rate is the one that you can expect to pay when your promotional offer is over, it's a legal requirement that credit card companies display this rate along with any promotional rates.
It is possible to make good savings by using these promotional balance transfer rates and many people have made effective use of these offers by moving balances from one card to another every few months.
Recently many card companies have introduced fees for those wishing to transfer balances, the fees can vary from 1% to 3% of the amount you wish to transfer, so pays to shop around for a card with low balance transfer fees.
Balance transfer deals are generally good news for everyone but the credit card companies offering them! Card companies actually lose money on most balance transfer offers. The losses are tolerated because the balance transfer deal is a great way of attracting new customers. The card companies hope to recoup their loses by encouraging you to use the card for normal purchases or by selling you other products like car loans and home insurance. So it might be wise to tick the 'No Direct Marketing' box when you apply for a card or you may find yourself being aggressively targeted to buy other products.
Another way the card companies can reduce loses on 0% deals is by withdrawing promotional rates for any customer who breaks the terms and conditions of the credit card agreement. In the business this is known as 'promo turn-off'. If you're on a promotion rate and you miss a payment or make a late payment it could result in your promotional rate deal being ended prematurely and the balance you transferred will start accumulating interest at the standard variable APR quoted when you applied for the card.
To avoid this you should always make sure you leave enough time for your payments to reach the credit card company and for the funds to clear your bank account. The best way to avoid missing a payment is to set up a direct debit to pay the minimum repayment required each month.