Before we start let’s define what a low balance transfer credit card is for those who don’t know. A balance transfer, is when you transfer your existing credit card balance from one credit card, to a new credit card that has a lower interest rate for an introductory period. Balance transfer credit cards are an incredibly effective way to consolidate debt and lower interest payments on credit cards easily. Imagine lowering interest rates from 29.9% on your retail store cards to 0% for 12 months.
However, there are a couple of golden rule when taking advantage of balance transfer credit cards to ensure you don’t end up playing into the hands of the banks:
1. Your goal should be to pay-off your credit card balance once the 0% introductory offer expires. After the introductory rate period, interest rates typically rise above the cards standard interest rates to levels between 19..99% to 21.99%. If you can’t pay off the balance by the end of the intro period, you should strongly consider either opening up a cheaper line of credit or finding another low-rate balance transfer offer you can surf your balance to before the intro rate expires.
2. Always, and we mean, always repay the minimum monthly amount. If you miss your minimum monthly repayment amount, you will lose your 0% introductory rate and it will rise to the go to balance transfer rates of between 19.99% to 21.99%.
3. Don’t use your balance transfer credit card for anything other than carrying your transferred balance. If you need to use a credit card to make additional expenditures use another credit card. The reason is, that if you make new expenditures on your balance transfer credit card, when you repay your minimum payment, the credit card company won’t pay down your highest interest balance first. It will equally allocate the payments, thus preserving the balance of your more recent purchases at the higher 19.99%, costing you more.If you separate your credit cards, you will have control over which interest rate balances get paid down first.
4. Sometimes the easiest thing to do is not get a new credit card at all, if your existing credit card company is willing to give you a lower rate. If you call you existing credit card company and let them know you plan on transferring your balance if they don’t discount your interest rate, many will be prepared to lower your rates, on your existing credit card. Give it a shot.
Not many Canadian issuers offer a 0% balance transfer rate. The PlatinumPlus Mastercard is the only one we see on the market today with no annual fee, 0% balance transfer APR for 12 months and a 1% transfer fee. Just make sure you watch out for the rate after 12 months which jumps to 21.99%. If a balance transfer credit card is not right for you, compare credit cards carefully, and make sure you find the right card to match your behavior, interest and spend.