CompareHero: Balance Transfers, should you really do it?

0

This is Part 5 of a question and answer session with Floyd Sijmons, chief executive officer of CompareHero.my, giving you unbiased views on credit cards, loans, even on insurance and home services (like broadband and telcos), along with other financial products in the Malaysian market.

If you have any finance-related questions to ask Floyd, please email them to [email protected].

Around 80,000 bankruptcy cases were reported in Malaysia, between 2005 to 2010. Debt is a widespread problem, further fueled by lack of financial literacy. There are different solutions for dealing with your debt problems – among them, balance transfer.  Balance transfer could help minimise your credit card debt – but could also cause more harm than good to your financial standing, if you’re not careful. It’s important to understand thoroughly how balance transfers work – with all terms and  conditions – before going for this option.

Q: What are the benefits of balance transfers?

A: Balance transfers entail transferring your outstanding credit card debt to a new card that offers a very low or zero per cent annual percentage rate (APR). The idea is to consolidate all your credit card debt to one card, under one interest rate. Your payments go directly toward the principal amount owed, instead of interest incurred.

 

Q: What are the advantages of balance transfers?

A: Balance transfers offer a workable solution to your growing debt problem. Availing of a zero per cent balance transfer credit card could lower the interest on your credit card debt and allow you to better track and manage multiple debts. A balance transfer could also improve your credit score, if you fulfil your monthly obligations promptly and diligently.

 

Q: What else could you tell me about balance transfers I don’t know about?

A: Here are some things you might not know about balance transfers:

• Transferring all your debt to a balance transfer card incurs a balance transfer fee. The industry standard is typically three per cent of the amount of debt you’re transferring. The rate also depends on how long promotional rates are offered.

• You’re more likely to get approved for a balance transfer credit card if you’ve good credit standing.

• Some banks specify that only transferred balances qualify for promotional rates. If you get a balance transfer card offering a zero per cent promotional rate, you’ll still pay interest on new purchases made using the card.

• Aside from credit card debt, you could also transfer other kinds of debt to a balance transfer card, such as loans on cars, appliances, and other monthly payments.

• Don’t overdo balance transfers. Applying for another low-interest card just when the promotional rate on your last one is about to expire hurts your credit score.

 

Q: How could I tell which balance transfer credit cards are the best?

A: Some factors include the terms of the contract, introductory rates offered, and rewards programmes. Customer reviews online and expert advice could also be useful. If you search CompareHero.my, Malaysia’s premier online comparision portal, for the best balance transfer credit cards, the following cards from RHB Bank Bhd (RHB) make the Top 3:

• RHB Mastercard Travel Money.

• Zero per cent interest valid for 24 months; RM70 annual fee; 18 per cent APR; up to 10 per cent cash back RHB MasterCard Gold.

• Zero per cent interest valid for 24 months; RM130 annual feel; 18 per cent APR; 1 reward point per RM1 spent RHB MasterCard Classic.

• Zero per cent interest valid for 24 months; RM70 annual fee; 18 per cent APR. Check CompareHero.my to find deals on balance transfer credit cards.

 

Q: Why should I consider transferring my credit card balance?

A: Consolidate your existing credit card debts to a balance transfer card to save money you’d otherwise have paid on interest.

Examples: Rama is paying off RM 2,000 debt on a card with a an 18 per cent APR. If she does a balance transfer to a credit card that charges three per cent, or even 0 per cent, she could definitely pay less on her monthly installments.

The difference might not be much – as she also has to consider the duration of the introductory fee, as well as balance transfer fee she’d have to pay up front – but she could definitely try to find the best offer. Dos and don’ts of credit card balance transfers?

 DOs

• Study all terms and conditions when looking at an offer. Check for balance fees, annual fees, credit limit, and the expiration date of the introductory offer.

• Compare credit cards online to find the best offer. Sites like CompareHero.my help save you time and money when looking for a balance transfer credit card.

• Evaluate if getting a balance transfer could really get you savings by doing your own calculations for you.

• See if you could afford to pay off all your debts within six months or within the period in which the special interest rate applies.

DONTs

• Quickly jump on a zero per cent offer without checking when the teaser 0 per cent rate expires. Promotional interest rates on balance transfer cards usually expire after 6 months.

• Be in a hurry to close credit accounts you transferred money from. Doing so could negatively affect your credit score.

• Make late payments. Late or defaulted payments could revoke the promotional interest rate on your balance transfer card.

This content is created by Floyd Sijmons for the readers of Borneo Post. Sijmons is the CEO of CompareHero, Malaysia’s leading financial comparison platform today. He believes in the value of saving Malaysians time and money by giving them information they need to compare financial products in the market. For more on what Floyd has to say, visit CompareHero.my.