Doing a balance transfer and need a large credit limit on the new card? Compare these cards.
Balance transfer credit cards are an appealing option when you want to pay off credit card debt. By moving your balance to a balance transfer credit card with a small or zero introductory interest rate, you could potentially save thousands in interest payments. At the same time you get more time to pay off your outstanding credit card balance.
Balance transfer fee
When working out if a card represents a good deal, you need to factor the balance transfer fee into your calculations. Some cards will have no upfront balance transfer fee applied, while others may charge a fee of up to 3% of the amount to be transferred.
Zero-interest introductory offers
You can now can find balance transfer credit cards with large credit limits that offer interest-free periods of up to 24 months. This long period increases your opportunity to pay off credit card debt. If you are finding that interest repayments are taking a big bite out of every monthly payment that you make, then a balance transfer may be a good option.
However, balance transfer credit cards are not straightforward for everyone. Firstly, a balance transfer normally requires you to have a credit rating that is at least fair, and in some cases good or excellent. Secondly, the available credit limit may not be big enough to cater for the balance you want to transfer. You also need to be very disciplined when you take up a balance transfer offer, since you’re opening another line of credit that could potentially get you deeper into debt in the future.
Take the opportunity to consolidate your debt
Balance transfer credit cards are essentially a refinancing option for all of your high-interest debt. In most cases you should not refinance just a portion of your debt. Instead of part refinancing, look for a higher limit from your preferred card issuer, and transfer all of your card balances at the same time. Most of the issuers have a straightforward system for working out if you qualify for a higher limit.
How credit limits are determined
Some of the factors card issuers will consider when assigning you a credit limit include:
Providers of balance transfer credit cards for large credit limits can be flexible, and may be able provide you with the increase you need.
Matt had been living large and loving life. Having built up $10,000 on his card Matt paid the minimum repayment of $200 towards lowering his balance. But with 20% p.a. interest card at such a slow pace it was going to take Matt over 8 years to pay it down to $0.00.
Something had to give, mainly, his old card. He compared his options and finally, Matt switched to a 0% interest balance transfer card.
Now he’ll avoid about $2,000 in interest repayments over the course of 24 months. In plain English: that’s $2,000 that can go to paying off Matt’s debt in full, not his credit card interest.
Having a balance transfer card with a large credit limit means that you can consolidate your debt. You can transfer balances from several existing credit cards in your name. Citibank and Virgin Money balance transfer cards even allow you to transfer a personal loan to your new credit card. Not only do you consolidate your debt, making it easier to keep track of because it is all in one place, you also get a break from paying interest if there is a zero-interest introductory offer for balance transfers.
The biggest drawback is usually the revert interest rate. This is the interest rate that will be applied to your debt if any part of it remains unpaid after any zero-interest offer has expired. Credit cards that allow large credit limits typically do not have low interest rates. In addition, a balance transfer revert interest rate may often be the cash advance rate for your card, which is normally even higher than the already high purchase rate. Before you transfer a large amount of debt, you need to be fairly certain that you will be able to pay it all off before interest begins to be applied.
Also bear in mind that many card issuers charge an upfront fee of between 1% and 3% on any transferred balance. The larger the amount you transfer, the larger your fee will be. A transferred balance of $20,000 with a 3% upfront fee would instantly become a $20,600 debt.
The same caveat applies to the minimum monthly repayments required, usually between 2% and 3% of the balance transfer amount. While you may be confident that you will be able to clear the debt before interest is applicable, you also need to be sure that you can meanwhile manage to make the minimum monthly repayments. For a $20,000 balance transfer, minimum repayments could be as high as $600 per month.
Not normally. Balance transfer credit cards do not usually allow amounts to be transferred which use up more than 80% of the approved credit limit on the new card.
Having an unpaid balance transfer on your card will mean that you will forfeit the monthly interest-free days on purchases in most cases. As a result, high credit card interest will be applied to your purchases from the date of each transaction, meaning that you will probably want to avoid using your balance transfer card for new purchases.
The only exception is where the new card also has a zero-interest introductory offer on purchases in place, usually for six or twelve months. Your only limitations in this case may be the size of the remaining 20% of your credit limit, and your ability to repay both your purchases balance and the balance transfer, before they start incurring interest.
The larger the limit, the more likely it is that you will need to demonstrate not only a good credit rating but also a steady income large enough to allow you to make the required repayments, including any interest that may be applied in the future.