This is a first part of the balance transfer series
First thing first, do not use credit card balance transfer to delay your debt payment. If you do that, you get yourself into a situation where you are really not making any progress. You are at best prolonging the debt payment by moving your debt from one card to another. All you're really doing is trying to stay ahead. It's a tough act to follow through as sooner or later, the special promotion rate will expired.
Understand the payment priority
To understand the payment priority in credit card balance transfer, let’s look at the example below:Suppose you have already carried some outstanding balances or are continue charging the current card, when you transfer outstanding balance from the 2nd credit card at a promotion rate, your monthly payment made to the current card will first goes to the financial charges if any, then to the low promotion rate balance transfer amount, and at last, if there are any more money left, it goes to your regular card balance than carries 18% p.a. interest rate.
For example, if you transferred RM5,000 at 0% interest and has a card balance of RM500 in your credit card, if you pay RM1,000 to your account, 100% of the RM1,000 will go straight to payoff the RM5,000 from balance transfer first and left nothing to payoff the RM500. As a result, you will be slapped 18% p.a. for the RM500. All monthly payments of your current credit card will goes straight to the balance transfer amount until it’s fully settled.
There are two ways to avoid this trap. Find a bank that separates your balance transfer account from your existing credit card account. By having separate accounts, it allows you to make payment accordingly. However, most of the banks are now offering only combined accounts. At the time this article is written, Standard Chartered & RHB Bank is still offering separate accounts. Call the banks to get the latest update.
If you are attracted to a particular promotion rate but it comes only with combined account, before you transfer any outstanding balance to the card, pay off any outstanding balance and stop charging the card until all balances are paid off.
Watch your card limit
Another common pitfall in b
Summary:
To play and win the credit card balance transfer game, here are the 5 things you need to know:
- Do not use balance transfer to roll your outstanding debt.
- Do “clean” your card before you make any balance transfer and stop using the card until the balance transfer is fully settled. Reason – you monthly payment goes to settle the balance transfer first before it reaches your current charges.
- Do not transfer up to the maximum allowable amount to avoid over limit penalty. Reason – processing fee is included and counted in the total amount transferred.
- Pay the balance transfer at the same billing date of your credit card. Remember to check when the special promotion rate expires. Best to aim paying off the balance transfer a month in advance.
- Special or low interest rate is not the deciding factor; repayment
