September 9, 2010
Consumers who are fighting off unpaid credit card debts by switching to a balance transfer credit card are being warned to watch their interest rates, as a new study by RateCity has found that "hidden" rates such as revert rates are being hiked up.
The study discovered that since December 2007 the average revert rate on balance transfer credit cards - which is the interest rate on purchases following the honeymoon or introductory period - has increased by 3.85 percentage points, to 18.39 percent. The average purchase rate on balance transfer cards has also jumped by 236 basis points, from 14.8 percent in December 2007 to 17.16 percent in August 2010.
While credit card providers were hiking up these balance transfer rates, the official cash rate fell by 2.25 percentage points, to the current 4.5 percent.
Credit card providers drop the low rate 'for life' cards
Back in December 2007, RateCity recorded 84 balance transfer credit cards that offered a low rate "for life" which means there's no time period of when the introductory rate ends, so as long as you pay the minimum repayment on your balance transfer debt, you can take as long as you want to pay it off.
But now, credit card providers have almost completely diminished this offer, with only three cards that have this low rate for life feature in RateCity's database, by Citibank and Suncorp Bank.
But on the flip side ...
It isn't all doom and gloom for consumers with credit card debt. The good news is that the study also found that the length of introductory periods for balance transfer credit cards has increased from an average of 6.2 months to almost seven months.
And there are currently 11 credit cards that offer no interest charges for up to six months, so you can still save a lot of money in interest if you pay down your debts during the intro period.
There are certainly plenty of opportunities to use credit cards effectively and beat the banks on high interest and fees. For instance, for a $5000 debt you could save almost $500 in six months by transferring your debt to a balance transfer card charging no interest for six months compared to an interest rate of 19 percent.
Be careful not to use the card for new purchases or to make cash withdrawals because the interest is usually much higher. If you are in the market for a balance transfer card, compare credit cards online and start saving today.