26th February 2015 - 4 min read
Carrying heavy credit card debt? If so; you’ve probably been thinking about shedding that hefty interest rate by applying for a balance transfer (BT). No doubt, you can save a tonne of money on interest payments if you use it right. But a BT may not be for everyone. In fact, you may not even qualify for one in the first place.
Before you increase your heart palpitations with another bank rejection notification or plunge yourself into further debt; consider these factors before applying for a BT.
Although, banks make it clear in the details of a BT; few people take notice of the fact that the credit limit of the card receiving the transfer needs to be enough to accommodate the transfer. For instance, say Bank A’s card is offering a super BT rate and you want to transfer your balance from your Bank B card. Bank A has a limit of RM10,000 but you’ve used upRM2,000. Bank B contains a balance of RM9,000. Until you free up RM9,000 on Bank A’s card; your BT application will not be approved or will be partially approved.
In the event you are applying for a new card for the transfer; you may have to request a specific limit to ensure it can accommodate your balance.
Most, if not all, BTs will set a fixed amount you have to pay every month in order to enjoy the promo rate. Failure to do so will result in either you losing the preferred interest rate or incurring additional fees. Neither of these is a situation you want when the point of a BT was to save money. Ask the receiving bank about their policies on BT repayment and the set amount you will be required to pay. You will then need to make a commitment to repay this amount diligently every month.
A 0% interest rate for 6 months is tempting but if you have a balance of RM15,000; will you be able to repay the whole sum in 6 months to make the most of your promotional BT rate? If not; you might want to perhaps consider a different plan, such as 3% for 12 months or 5% for 18 months*. It is not to say that you must prolong the agony of repayment but you will save more by choosing the right plan instead of taking a short 0% BT and paying 18% on the remaining amount for however long it takes to clear the debt.
The trap many ‘serial debtors’ fall into is when they take a BT on a new credit card and end up piling more debt onto it leaving them with more debt than before. The now empty card from which they transferred the balance will be filled too in no time. For example; you may already have 2 credit cards from Bank C and D but you take a 3rd From Bank E for the preferred BT rate. You transfer the debt from both Bank C and D onto the new Bank E card but instead of cancelling the other two cards you continue to spend on them. You also maximise the available limit on the Bank E card. Before you know it; you’ll be stuck with 3 full credit cards!
When taking a BT on a new card; you will need to be disciplined enough to cancel the other two cards and resolve not to add anymore onto the new card. If this seems too hard a task – a BT may not be the debt answer you seek.
You can definitely save a lot of interest charges on a low rate BT but it’s not always the best solution for everyone; or it may require more forethought before application so definitely consider these factors before hitting the ‘apply button’!
Interested in a BT but don’t know which bank offer would be the best for you? Let us help; find the best BT credit card for you with our handy comparator.
*Interest rates in the example are for illustration purposes and are not to be taken as the general average of offered BT rates.
Subscribe to our exclusive weekly newsletter and we’ll bring you the week’s highlights of financial news, expert tips, guides, and the latest credit card and e-wallet deals.
Stay tuned for what’s to come next in the personal finance world