BUT NO INTEREST FREE PURCHASE PERIOD

Remember that the ‘up to 55 day interest free’ period for new purchases, only applies when the balance is paid off in full by the due date, so if you are taking advantage of a balance transfer interest holiday, any new purchases will incur interest from day one – in this case at a rate of 20% per annum.

“0% p.a. for 24 months on balance transfers…”

This real life example offers a two year interest free loan.

Free money? No, because you have to take the credit card fees into account, but if you work it right, it can be valuable.

The card being offered here has annual fees of $199, so one way to think about it, is to treat those fees as interest.

Since the amount of interest is fixed at $199 every year, the effective interest rate will depend on how much you borrowed.

…in this case the amount of the balance transfer.

So if you transfer $5,000 then a fee of $199 each year is the same as a 4% interest rate.

For other amounts:

Your Balance Annual Fee Effective Rate
$10,000 $199 2% p.a.
$5,000 $199 4% p.a.
$2,500 $199 8% p.a.
$1,500 $199 13% p.a.
$1,000 $199 20% p.a.

You’re in charge. Help us to know which articles are interesting and which aren't. 'Like' the articles you... well... like, and don't 'Like' the others. We'll get the hint!So if your debt is over $5,000 it’s an attractive offer, even with the annual fees. But once the balance drops below around $2,500, you may be able to find cheaper finance, elsewhere.

If you decide to take advantage of this type of offer, make it work by being disciplined…
  • Make at least the minimum payment before its due date. Be regular as clockwork (diarize it or set up a recurring payment via online banking). If you don’t, late payment fees will destroy the benefit very quickly. In this case the fee is $10 per week. That’s $520 per year.
  • Avoid making purchases on this card— or repay them immediately — as you will have no interest free period (see right), and in this case be charged more than 20% per annum.
  • Repay the balance in full within the introductory interest free period. Beyond that you will be charged at the cash advance rate – in this case nearly 22% per annum.
  • Make sure that you cancel the card (and that $199 per annum fee) if and when it stops making financial sense.
Be careful of becoming a ‘serial balance transferrer’

Don’t overdo it. If you apply for a new card time and time again, the repeated credit applications will show up on your credit report, which may make it harder to get credit down the track when you really want it.

What are your thoughts?

Do you think it makes sense to switch your credit card balance to a 0% offer card? Are your credit cards in control? Is there anything else you’d like to know about managing credit card debt?

Join the conversation — leave a comment below and let us know what you’re thoughts are.

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