Avoiding Charges With Credit Cards

The technique of transferring balances between credit cards in order to avoid interest charges has undergone a step change in complexity in recent times as card providers suddenly found themselves victims of so called “rate tarts” who would periodically move their cash balances between different cards at regular intervals to avoid any interest charges. Credit card companies used the balance transfer technique to attract new customers, but they quickly had to change their rules once it became apparent they were only attracting the “rate tarts” who would move on to another provider as soon as their deal had run it’s course.

The attractiveness of the interest free balance transfer card was reduced for many customers but with care canny rate tarts could still take advantage of the deals being offered by the credit card companies. The natural move for the card providers was to impose ever more complex and confusing terms and criteria to their balance transfer deals. That served to reduced their exposure to the rate tarts but it also exposed the unwary “normal” customers to a series of precarious positions that needed to be carefully avoided. These are the things to watch out for if you decide to take up credit card with an interest free balance transfer option included.

Unless your card specifically provides for it with an interest free period, do not make any new purchases on your card that carries the transferred balance. It is likely that the interest rates applied to new purchases will be higher than average and also any repayments made to the card will not be allocated to the new purchases until the entire amount of the transferred balance is paid off. So you could be in the position of incurring these higher-than-average charges against your purchases for an extended period of time.

Remember not to be swayed in to making new purchases by the offers of cash-back or reward schem es. Card companies will look for ways to entice you into making these new purchases as a means of charging back some of the cost of offering the interest free balance transfer deal.

Also completely avoid using your card to with draw cash. Cash transactions using credit cards attract some of the highest rates of interest and many customers remain largely unaware of this until they spot interest charges itemised on their monthly statement. Withdrawing cash on a credit card is not the same as using a debit card. Firstly, unlike debit cards, there will always be an interest charge and it’s likely to be fairly high. Additionally, unlike purchase made on a credit card, cash withdrawals attract interest charges immediately, rather than after an initial period of up to 50 days.

Plan carefully for the time when you balance transfer deal expires. You should either look to have fully repaid your transferred balance by the time your deal runs out or you should ha ve made arrangements to move the balance to another card before your interest free period stops.

Another situation to watch out for is the withdrawal of the agreed inter free period if minimum monthly payments are not maintained. The rules of a particular card may allow the provider to withdraw the interest-free element if a customer misses a regular repayment. One survey in 2007 found that 75 per cent of card providers in the UK had terms that allowed them to withdraw all introductory offer benefits in the event of a single missed or late payment. In the UK the Office of Fair Trading set a cap on the fee that could be charged in the event of a late credit card repayment, but if attractive interest free terms are also withdrawn the financial impact of forgetting a payment can significantly higher.

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Michael Lennan provides credit card informatio n for several finance orientated websites. Read his work and learn more about credit cards and how to select the best credit card offers.