Putting Balance Transfers and Purchases on the Same Card

Balance transfers on credit cards can be a great thing. They allow you to consolidate debt and lock in a low balance transfer rate for a certain period of time (usually six months to a year). However, many people get trapped by the credit card companies when it comes to balance transfers and they fail to take proper advantage of the benefits of the offer because they don’t realize that the offer requires them to take certain actions. Most people know about the major things to look out for with a balance transfer but there are some hidden things that many people aren’t aware of. One of the most common traps is that people will make purchases on the same card that had a balance transfer and create problems with their interest and payments as a result.

Typically people engage in a balance transfer because they want to lower their interest rate. The ultimate goal is to be able to pay off a big balance more quickly because the money is going to the principle instead of to the interest. For example, if you lock in a zero percent interest rate for twelve months on a balance transfer then you have twelve months during which the payments you make will be going to pay off the principle. This is obviously a good financial move and the benefits of it can outweigh some of the problems. For example, most people know to look at the fee that’s charged for a balance transfer transaction; it’s often worth it to pay the fee because of the savings in interest that you’ll get over the lifetime of the balance transfer offer.

However, there is a catch when it comes to balance transfers and it often causes problems for people in regards to paying down the principle on their debt. The catch is that the balance transfer rate applies only to balance transfers and not to other transactions on the card. You may not think that this is a big deal if the transaction APR is lower than your other cards but the way that payments are processed could cause you to lose out on the benefits of the balance transfer. That’s because your payments will go towards paying the higher APR first.

For example, let’s say that your zero percent balance transfer card also offers a 9.99% rate on purchase. That’s a good rate that may be better than your other cards so you go ahead an make several purchases on the card. The card now carries two different interest rates – 0% on the balance transfer and 9.99% on the purchases. The problem is that your payment is going to first go to pay off the amount that’s got a 9.99% interest rate. So you’re going to be making payments that cover only your purchases and you won’t be paying down the amount of debt that you have on the balance transfer. This can still be a smart move if you’re seeking to delay making payments on the balance transfer amount but it’s not a smart way to think about actually paying off your debt.