Credit Card Tutorial by GenX @ http://www.GenXGenYGenZ.com
Update September 2016 – Maybank is offering 0% 12 Months Balance Transfer until March 2017 where 3% Admin Fee Waived during Promo Period.
If you are new to credit cards, before you proceed to read this article on Balance Transfer, I suggest click here to my CREDIT CARD TUTORIAL or at the very least, read the articles below to have a better understanding of credit cards:
There are 2 ways how one can benefit from 0% Balance Transfer Plans.
Benefit No.1 – For Those Who Have No Outstanding Balances, They Can Earn FREE Pocket Money
Besides earning Reward Points and/or Cash Back with credit cards, 0% Balance Transfer Plan is one of the other “real” benefit of having credit cards. For those who have cash in hand to pay for their purchases in full, Credit Card 0% Balance Transfer Plans allow them to actually earn some FREE Pocket Money by utilizing 0% Balance Transfer Plans.
Say, for example, you want to buy a Rolex Watch costing RM60,000 from Swiss Watch Gallery (Rolex Authorised Dealer) where they have outlets at Pavilion or Bangsar. And you have the RM60K cash in hand to pay in full.
However, Swiss Watch Gallery does not accept Maybank credit cards for 0% Installment Plan.
You want to use your Maybank 2 Cards Premier AMEX Reserve to earn 5X Treats Points (TP) because of the fantastic conversion of TP to either Enrich Miles or KrisFlyer Miles. I.e. spend RM60,000 with the Maybank 2 Card Premier AMEX Reserve, we can earn more than 60K Enrich Miles or KrisFLyer Miles!!! That’s more than enough to upgrade an Economy Ticket to Business Class one way KL to London (or vice-versa) with Malaysia Airline Berhad.
So, you pay for the Rolex watch using your Maybank 2 Cards Premier AMEX Reserve and then go perform a 0% 6 Months Balance Transfer Plan with 6 equal installments.
Month No.1 – Use RM10K to pay for the 1st repayment of the BT Plan. Balance RM50K deposit into 1 Month FD with 3% interest rate.
Month No.2 – Repay another RM10K towards the BT Plan. Your would have earned RM125 from the 1 month FD mentioned in item 1 above. So, balance RM40,125 deposited back into 1 month FD.
Month No.3 – Repay another RM10K towards the BT Plan. You would have earned RM100 from the 1 month FD mentioned in item 2 above. So, balance RM30,225 deposited back into 1 month FD.
Month No.4 – Repay another RM10K towards the BT Plan. Your would have earned RM75 from the 1 month FD mentioned in item 3 above. So, balance RM20,300 deposited back into 1 month FD.
Month No.5 – Repay another RM10K towards the BT Plan. Your would have earn RM50 from the 1 month FD mentioned in item 4 above. So, balance RM10,350 deposited back into 1 month FD.
Month No.6 – Repay the final RM10K towards the BT Plan. Your would have earned RM25 from the 1 month FD mentioned in item 5 above. So after settling the Balance Transfer Plan in full, you would have earned yourself RM375 FREE Pocket Money 🙂
However, sad to say that nowadays, not many banks offer 0% Balance Transfer Plans except for AEON Credit and Public Bank.
Benefit No.2 – For Those In The Shit Hole Of Debt, They Can Save On Interest Charges
Credit Card 0% Balance Transfer Plans were not created to earn you or me any pocket money; but as a marketing gimmick to attract those who have accumulated debt with their credit cards to “switch” their debt from one account to another financial institution’s account.
Generally for Balance Transfer, most banks offer lower interest for shorter Balance Transfer repayment duration. Why are the banks (financial institutions) so generous in offering 0% Balance Transfer Plan? Well, the banks know that most people who have outstanding balances have no discipline when it comes to spending. Therefore, they will attract you by offering a lower interest rate for the shorter Balance Transfer duration program, hoping that you can’t settle in full and then charge you 18% interest.
If you have read my Prerequisite Course titled Life – Goal Is To Be Debt Free, you would know by now that 70% of credit card holders have debts amounting to tens of billions.
Therefore, for those of us who are in the deep shit hole of debt because we have overspent as a result of our own doing, thank God that some banks are offering 0% interest free Balance Transfer plans.
If you are one of the millions having outstanding balance with your credit card and paying interest of 13.5%-18%, it makes sense to do a balance transfer, thus forking out less on interest payments.
However, if you do a Balance Transfer and then start to use up the available credit which has been transferred to purchase unnecessary things which are not needed for your survival and can’t settle in full come payment date, my advise is, you better just cut up the card in half and settle your debt or else you are just going deeper down the shit hole and being a slave to the banks.
You have to admit that you are living beyond your means once you do a Balance Transfer. The fact is that you are in debt. And remember, for balance transfer plans with equal installments, if you only pay the minimum or do not settle the Outstanding Balance in full prior to the Due Date, once again you’ll be imposed interest charges.
Before you sign up for a Balance Transfer Program, you have to consider the following:
1. How much can you afford to repay a month? For equal installment repayments, if you can only afford to pay part of it (minimum 5% or even 90% of your monthly Statement Balance), you will then be charged 18% interest on Outstanding Balance (including the balance of the Balance Transfer monthly installment amount if any) which defeats the purpose of you doing Balance Transfer in the first place. If you opt for equal installment repayments BT Plans, make sure you can afford to settle in full (repay 100%) the monthly installments to avoid additional interest charges.
2. How long would you take to settle the debt in full? For Balance Transfer Plan that only requires you do make minimum 5% payment monthly, there’s no point doing a Balance Transfer for say 6 months to enjoy a lower interest rate and then come end of 6 months you have yet to settle the debt and will be charged 18% again. Generally, the faster you pay up your debt the less interest you will be charged.
Also note that there is a penalty clause for early settlement, which is usually about RM100. Therefore, make sure you keep track of when the Balance Transfer program expires and maintain a nominal amount until expiry date and then pay in full the next day.
3. What is the effective interest rate (annualized). Don’t be fooled by the so called interest rates advertised by the banks. For example, some banks may offer interest rate at 7% a year for 2 years Balance Transfer program but that 7% interest is charged up front per year (like hire purchase/car loan). Therefore, the effective interest rate when annualized is much higher.
4. Free gifts with Balance Transfer. Some financial institutions offer free gift when one does Balance Transfer and the cost of this so called free gift is included in the interest charges. It is better to go for lower interest charges instead of having material stuff which is most probably the main reason one is in debt in the first place.
5. Last but not least, are you willing to put your present credit card(s) in the drawer until you finish paying up your current debt? No point doing Balance Transfer and at the same time have new outstanding balance with your credit card(s) because you are just incurring more debt. The fact is that one does Balance Transfer because he/she is unable to pay his/her debts.
If you have considered the above and are determined to be debt free, then continue reading otherwise don’t waste your time. Continue reading