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Balance transfer cards: Lower fee or longer interest free period?

Balance transfer cards have become popular in recent years, as customers become more savvy about ways to manage their finances and avoid paying punitive interest charges on most regular credit cards.

The beauty of a balance transfer credit card is that it offers you a way to consolidate a number of outstanding card balances, onto a single, low-finance rate card. For example, you may have a number of department store cards, an old Amex or Visa card, all with varying high interest rates.

It’s easy to become complacent with a number of different balances and fall into the trap of paying the minimum repayment amount each month, ignoring the resulting interest rate charges accruing!

Paying off the minimum amount will extend your repayment period into many years. Multiply that over several outstanding credit card balances and even the small sums add up. You may even find yourself eventually repaying several times more than you ever borrowed.

A balance transfer card offers a real glimmer of hope for those with credit card debts. Generally there will be a fee attached to balance transfers, so factor this in when comparing interest rates to select the best option for you.

Also factor in the length that the rate is applicable for. For example, some cards will allow you to have a special low introductory rate for a period of time, others will offer a slightly higher rate, but for the life of the balance.

There are also cards offering a zero percent fee for introductory periods (although these generally have a higher transfer fee).

As a rule of thumb, if you anticipate a rapid repayment, go for the lower cost of finance for the shorter timeframe. Larger amounts, where you need the security of knowing your repayment, are best on a ‘life of balance’ rate.

Use online websites to compare and measure the different cards on the markets. Some offer calculators to help you choose the most competitive product for you. Factor in all possible costs, whether transfer fees, interest rates, exit fees from any current card, annual fees or similar.

It’s important to make the decision about your new credit card after doing the maths. Don’t go on advertising, gut feel, or, even worse, a gimmick or special joining offer. If in doubt, speak to someone with a head for numbers and work through the costs with them.

The finance industry is not always the easiest to understand and failing to take the time to read all the small print can lead to surprise costs and hidden charges.

When you’ve selected your new card, avoid spending on it! The interest rate that applies to new spending may not be the same attractive rate as for your balance transfer. It’s also important that you focus on clearing the debt.

The work you’ve taken to find the best balance transfer card indicates that you’re committed to improving your personal financial management and it’s a great boost towards taking next steps, such as making budgets, working how much you can repay off your debts and living within your means.

If you have more than one balance transfer card or other loans, focus on paying the one with the most expensive cost of finance first.

Also, in the situation with many loans and credit cards, it’s worth seeking information from an advice or help organisation to find a manageable way to repay your debts and improve your financial situation.

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