Using introductory rate credit cards has become a popular way for UK borrowers to manage credit card debt. Introductory rate credit cards offer borrowers a preferential interest rate when they first sign up for a new card. There are three main ways in which this can happen. All of the ways offer significant advantages for credit card borrowers. 0% Balance Transfers The one that is most appealing to consumers is the 0% balance transfer offer. This offers a nil rate of interest on balances transferred to a particular credit card. There is usually a limit to how long this offer applies, but this can vary from three to 12 months, so most people will be able to find an offer that suits them. The trick to using 0% balance transfers effectively is to move balances from card to card before the expiry of the offer period. This is known as rate surfing. Credit card companies don't like it, because it loses them hundreds of thousands in interest. For consumers, however, rate surfing offers the chance to clear some or all of an outstanding debt. This is because payments to 0% cards reduce the debt each month instead of being applied to interest. Fixed Low Balance Transfer Rate Another typical introductory credit card incentive is a fixed low interest rate for the lifetime of a balance transfer. That means that the lower interest rate will apply for as long as the debt remains on the credit card. For example, if the standard variable interest rate is 13.9%, a credit card issuer might offer a reduced rate of 4.9%. This is a good option for borrowers who have a loan or debt on which they are paying a higher interest rate. Transferring to this kind of deal can save consumers hundreds of pounds and can help them to repay debt more quickly. With this kind of deal, there is little advantage to rate surfing unless another card issuer is offering a better preferential rate. Permanent Low Rate A third type of credit card incentive offers a low rate on spending on the card. This is usually a few percentage points below the standard variable rate. This type of offer can be a good option for consumers who spend regularly on their credit cards. This is because most balance transfer offers have higher rates for other types of transactions such as purchases, cash withdrawals and credit card cheques. Other Features Of Introductory Rate Credit Cards As if low rates were not enough, many credit card issuers offer other incentives to new customers. These include: - the ability to contribute to charity by using a particular credit card - discounts off purchases from particular manufacturers - cash back on purchases - additional insurance on purchases or travel Many credit card companies have got wise to rate surfing and now apply a one-off charge for balance transfers. It is worth shopping around to get the best combination of interest rates and other incentives. |
