Things to know before using a balance transfer

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A 0% credit card balance transfer deal might seem like a great deal – but you need to be aware of some potential costs.

What is a balance transfer?

A balance transfer is when you take your credit card debt from your current lender to a new one, usually to improve your interest rate or receive a 0% interest free period to allow you to pay out your debt within a specified time frame.

If you do not pay off your credit card within this time frame however you may be lugged with high interest rates and late fees.

Ensure you do not fall into the trap of continually transferring debt to different cards as you can be caught paying unnecessary fees.

This can also affect your credit rating because every time you make a credit transfer or even just a loan enquiry it is recorded on your credit rating.

Things to be aware of when looking at using a balance transfer:

Hidden costs:

When choosing your new credit card to transfer your current balance there are some hidden costs you need to keep your eye out for.

  • Credit card interest rate – Even though you may have gotten what you think is the deal of the century on your balance transfer you need to pay attention to the rate in which the credit card interest changes to once the ‘Honeymoon’ period is over. Sometimes these can be more than 20%!
  • Transfer fees – Check before you sign what the credit card transfer fee’s are! These fees can sometimes be up to 3% of the amount being transferred, which can make paying off your original debt more difficult.
  • Annual fee – You also need to look out for the credit card annual fee.

You may assume that because there is a 0% balance transfer advertised for a certain period that you won’t be charged anything and it’s an awesome deal.

Make sure you read the fine print because sometimes the annual card fee may be higher than usual and you don’t want to be adding more debt to what you are already trying to pay off!

Purchase interest rate:

Once you have your new balance transferred interest rate card do not be tempted to use that credit card for any new purchases!

This is the loophole that gets most people and makes the banks a lot of money in interest.

Banks or lenders can charge interest from the day that purchases are made on your credit card and some of these interest rates can be up to 24.99%p.a.

Do yourself a favor and put your balance transfer credit card in the freezer or in a place where you won’t be tempted to use it and move on from crippling debt.

Credit card revert rate:

The credit card revert rate is also another dodgy character you don’t want to get mixed up in.

The credit card revert rate is the rate you get charged once your initial interest free period has expired and you haven’t paid out your balance transfer in full.

Sometimes the revert rate can go from 7.9%p.a on a balance transfer to 21.99%, that’s definitely enough to convince me to pay off my balance transfer before the Honeymoon is over.

Other things you may not know about balance transfers:

Balance transfers do not happen immediately:

A balance transfer from your old card to your new card can take between 2-4 weeks so once you have signed on the dotted line, put your old card away somewhere safe.

This way you wont be tempted to use it, if you keep using your old card during this period you may incur extra fees and charges on top of your current debt.

Balance transfers have a transfer limit:

The new credit card you are opening for your balance transfer must be greater than your transfer balance, for example if you are wanting to transfer $1900 then your credit card limit must be at least $2,000. Each bank/lender will have a different policy so ensure you check your banks policies.

In conclusion balance transfers can be a great way to eliminate debt as long as you are strict and pay down your debt in the interest free period and ensure you do your research on the deal you decide to go with.

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Jacaranda Finance does not charge an annual interest rate on SACC loans. These small amount loans incur 'fees' instead of interest. The maximum comparison rate on our loans between $300 and $2000 is 199.43%.

WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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This comparison rate is based on a medium amount credit contract of $2,500 repaid over 2 years with a $400 establishment fee and APR of 20.56%.

WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principle Amount) + $400 (Establishment Fee) + $555.83 (reducing interest*) = $3955.83 total repayable over 18 months with weekly installments of $50.71.

Loan Amount of $4,500 over 24 months repayable weekly (104 weekly repayments). $4,500 (Principle Amount) + $400 (Establishment Fee) + $1081.85 (reducing interest*) = $5981.85 total repayable over 24 months with weekly installments of $57.51

* Reducing interest means that the 20.56% APR is applied to the outstanding balance on a loan. When a loan repayment is made, the loans outstanding balance goes down and the APR is applied to that lower balance. Therefore, the interest component of the loan will constantly reduce (as long as repayments are being made!) - thus it is called reducing interest.
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WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate
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Loan Amount of $5,000 over 18 months repayable weekly (78 weekly repayments). $5,000 (Principle Amount) + $1831.16 (Interest) = $6831.16 total repayable over 18 months with weekly installments of $87.57.

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principle Amount) + $5041.72 (Interest) = $15041.72 total repayable over 24 months with weekly installments of $144.63.

* Reducing interest means that the 19.88% APR is applied to the outstanding balance on a loan. When a loan repayment is made, the loans outstanding balance goes down and the APR is applied to that lower balance. Therefore, the interest component of the loan will constantly reduce (as long as repayments are being made!) - thus it is called reducing interest.
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