A Loan Based On Your Income

WrittenBy:General

Written By:Alan Sanderson

There are many intricacies involved with managing balance transfer cards and purchases. When you transfer a balance to a new credit card, probably taking advantage of a special offer rate available for the first six months or so, using that card for new purchases can be quite problematic.

Assuming a typical situation where a balance has been transferred, of almost the maximum credit limit, but with enough spare balance available to make a few essential purchases.

Minimum Payments

Because the balance transfer cards and purchases offers are still running, it makes no sense to pay off more than the minimum payment on the outstanding balance as long as you have any other debts.

If you think you can pay off more than this, the money is best placed in a high interest savings account for the six month period, and then used in one go to pay off the maximum possible balance once the low or 0% interest deal finishes.

Payment Allocation

New purchases are only starting to be included in special balance transfer deals very recently, and on most cards you would have to pay the full rate of interest.

Even so, you will almost certainly have to pay at least some interest on these new purchases while the offer lasts, and the way that minimum payment allocations work mean that there is a much better way to approach this.

Payment allocation is a system whereby the credit card company takes any payment you make on a balance, and allocates it to whatever items are on the card that they make the least money from.

In the case of a card still in a 0% balance transfer deal period, this will be the transferred balance. Thus any payments will not touch the new purchases, and you will have to pay the full rate of interest on them probably from the moment you make the purchase until the entire transferred balance is paid off.

If you are able to buy these purchases with another credit card that is paid off in full every month, then it is likely that you will not have to pay more than minor interest charges.

Purchases Card

Of course there is a lot to be said for reducing the overall number of credit cards you hold, but if you are in a situation where you have to use a balance transfer and purchase credit card during a special offer period, you are better off having or retaining a second card for purchases only.

One thing worth seriously considering for this could be a charge card, although the flexibility of payments is much less, as long as you can cover your monthly purchases this is a cheap option.