The Rate Tart

Life of Balance Credit Cards - Handle With Care

Life of Balance Cards – Handle with Care. Life of Balance cards are the latest innovation in the crowded market for balance transfer credit cards. These cards are aimed at customers who do not want to transfer a balance every time a 0% offer ends, but who also do not want to have to pay a high standard APR. The main benefits of these cards are;

1. No balance transfer fees (most 0% balance transfer cards now charge a 2-3% transfer fee).


2. A low interest rate (typically 4-6% APR) on the balance transferred.


3. A promise that this rate will remain in place until the amount transferred is paid off in full.

Listen to the marketing pitch and you'll believe that these new cards have been introduced because the credit card companies want to save their customers from all the hassle associated with those pesky 0% deals. Here at TheRateTart we think differently. It's a rare day when the banks do anything out of pure selflessness. So what's really behind this latest move in the never ending battle between consumers and corporations? The short answer is profits. Although the annual reporting season has seen the major banks report multi billion pound profits, savvy consumers have eaten into these by switching between 0% cards, reclaiming bank charges and actively chasing the best deals (also known as being Rate Tarts). By introducing the Life of Balance Credit Card, banks are hoping to slow down or stop the practice of credit card switching. Under the right circumstances Life of Balance Credit Cards can be great. But remember – the only reason these products exist is that credit card companies believe they are more profitable than other balance transfer cards. So...

1. If you switch to a Life of Balance card, make sure you never use this for any new spending. The reason for this is related to the way in which credit card companies pay off your outstanding debt (or payment hierarchy). Most pay off the least expensive debt first leaving the most expensive to gather as much interest as possible for as long as possible. Any new spending on a Life of Balance Card will attract an APR several times higher than that paid on the balance transfer, but will only be paid off after the balance transfer. So the bank makes a pile of interest whilst you think you are getting a good deal. To find out what the payment hierarchy on your card is check the Terms and Conditions or call their customer service department. The best bet is to have a 0% balance transfer or Life of Balance card for existing debt and a 0% on Purchases or Low Standard Rate card for any new spending.


2. Even within the Life of Balance Credit Card market there is competition. There are several percentage points difference in the range of APRs on offer. So just because you have a life of balance card, it can still pay to keep an eye on the market and switch if you see a better deal. Remember, currently most of life of balance cards do not charge a transfer fee, so there is no cost to the customer for switching to a lower rate.


3. Whether you are on a 0% Card or a Life of Balance Card remembering to switch has never been easier. By registering with TheRateTart you can set up a free email alert to remind you when to switch. Simply enter the date you want a reminder for (we'd recommend 4-6 weeks before the end of the balance transfer period) and we'll send you an email reminder with a link to our current best buys.

By reading TheRateTart, understanding the rules of the game and staying vigilant you can keep more of your money for the things you want, rather than the things your bank wants.

To discuss this story in our forums click here.