Don’t get trapped by a Balance Transfer

It’s that time of year, you’ve received your latest credit card statement and had your first official dose of bill shock. Combined with your New Year resolve to cut debt,  a Balance Transfer could be just the thing. shows 98 Balance Transfer offers available at the moment, some offering 0% interest on your balance for as long as 24 months.

“A 0% balance transfer can be fantastic tool for attacking debt as long as you use it correctly, and understand that your existing debt doesn’t just go away when you  transfer a balance.”

“The idea of a balance transfer is that it gives you some breathing space to actively repay debt, but what is often forgotten is that you’ll still pay interest on new  purchases,” says Mozo’s Kirsty Lamont.

The longest BT deal available is for 24 months but the average is around 10 months so it’s important to ask yourself whether this is a realistic timeframe given your past  repayment habits.

“Choose a balance transfer card that matches your debt repayment goals and abilities – use an online calculator to work out how quickly you’ll be able to pay off  your debt and choose a card with an interest free period to match,” says Lamont.

You’ll need to be disciplined with paying down your debt. For example, if you transfer a $4,000 debt to a 0% for 12 months balance transfer offer, if you only make the  minimum repayment of 2%, you will only have paid off $861 and will still have a debt  of $3,139 after 12 months, when you’ll have to start paying interest again.

Tips for using your Balance Transfer the right way:

1. Watch for annual fees – they can range from $0 up to a whopping $700  depending on the card you choose.

2. Check the fine print for balance transfer handling fees – a number of credit cards now levy fees of around 1% of your debt for processing a balance  transfer.

3. Don't get stung by the revert rate – once your 0% balance transfer period ends you can get hit by revert rates of over 20%.

4. Don't be tempted to use the card for new spending until you’ve paid off your  initial debt - this will only compound your debt problem.