New Year, new credit card
A New Year has brought no promise of respite from the current financial crisis and the credit crunch appears to be still in full swing. With the financial forecast still pretty gloomy as we head into 2009, its chilly winds are affecting not just big business, but ordinary consumers as well. However, a new year opens up a new opportunity to take control of your finances and despite the doom-laden headlines there are still plenty of financial bargains to be had if you know where to look.
The number of 0% credit cards has shrunk noticeably in comparison to January of last year, with the credit card companies tightening up on their criteria and reducing their market exposure and the risk of potential bad debt. Despite this ‘market readjustment’ though, there are still bargains to be had with some banks and financial institutions even advertising ‘Sales’ in a bid to lure in discerning customers. Right now, it is very much a consumers market, and savvy customers can take advantage of a market thats eager to keep its share of the economy. There are still 0% balance transfer cards out there; admittedly they’re harder to come by but they do exist. The major difference to last year is that credit card companies are being much more stringent in their definition of a ‘good’ customer, so it pays to check that your credit history is correct and up to date before applying for a balance transfer card. Even a slight discrepancy could scuttle your chances of successfully taking advantage of the tempting offers that are available. If you have a poor credit history, the first half of 2009 would probably be better spent in addressing this and making sure that when you do apply you have a better chance of being accepted.
There are a few things to take into consideration when looking at balance transfer cards. Firstly, be aware that you will be required to pay a transfer fee to move an outstanding debt from one card to another. This is normally around 3% of the total transfer, but some credit card companies have a minimum fee, regardless of the amount transferred. You need to include this figure in your initial calculations.
Secondly, not all 0% balance transfer credit cards are interest free for purchases as well. This backs up the golden rule of credit card transfers ” never use the card for purchases as well as transfers. The amount you pay off each month on the new card will go to pay off the most recent transactions, rather than the initial balance transfer. So if you use the card for purchases as well you could find yourself running out of time to take advantage of the 0% offer on the initial transfer. It also means that you could end up paying interest on your transfer ” something you wanted to avoid doing in the first place.
Some cards do offer dual functions ” 0% on balance transfers and 0% (usually for a much shorter period of time) on purchases. However, once the purchases deal runs its course, you may discover that the payments you make go to pay off the balance transfer, rather than the interest on outstanding purchases. This is known as ‘negative payment hierarchy’, with payments being used to clear the balances attracting the lowest interest rate first (the remaining time on your 0% balance transfer) and not your recent purchases. This could result in customers paying the full interest charge on purchases (usually around 18% but some can be much higher). It’s the polar opposite of the previous conundrum, but still reinforces the adage ” keep your balance transfers and your purchases on separate cards.
Once you’ve decided (wisely) to keep your cards separate, work out how much you can expect to pay each month and how much you will need to pay to clear off the balance transfer amount before the interest free period ends. Dont forget to factor in additional charges such as insurance (sometimes mandatory), any late payment fees and transfer fees. By taking active control over your finances, you may find the current economic storm much easier to weather. The financial market is subject, like any other marketplace, to greater consumer power these days, and as such a smart customer can take advantage of financial deals, even when the economic future looks somewhat bleak.
