As inflation continues to rise, the pressure of increased interest rates probably has you considering different means to reduce your debt burden. If you are battling, particularly with credit card debt, the current balance transfer offers from Absa and First National Bank (FNB) are probably starting to look quite attractive. However, before you sign on the dotted line, there are a few things you should consider.
A balance transfer offer means that you can transfer your existing credit card or any other debt to the budget facility on a new or existing credit card, usually at a reduced rate of interest.
It is basically a method of debt consolidation.
You can borrow only as much money as is available to you in the budget facility.
If your debts are more than the amount of credit that is available to you in the budget facility, you will still only be able to use as much credit as is available. If your debts are less, then you retain the difference in your budget facility for future use at your usual credit card interest rate.
Once you have established how much credit you require, you ask your bank to transfer that amount from the budget facility to the "straight" facility of your credit card. Then you can use the available credit - at the new reduced rate on offer - to settle the debts that you have targeted for consolidation.
Absa's offer
If you decide to take up the balance transfer offer from Absa, you will pay 11.9 percent interest. The interest rate of 11.9 percent, which is a fixed rate, is being offered only to new Absa customers. If you're an existing customer and you want to take advantage of this offer, you will have to settle for an interest rate of 13 percent, which is linked to prime.
You can choose repayment periods of between six and 48 months, and there are no penalties if you choose to settle the debt early or make additional payments. However, one of the conditions is that you continue to spend a minimum of R500 a month on your Absa credit card and that you use a debit order to settle the minimum monthly repayments on your credit card.
FNB's offer
FNB offers you an interest rate of prime minus one percent for nine months. This means your repayments at the reduced interest rate would be calculated over nine months.
Prime is currently 14.5 percent so this means you would pay interest of 13.5 percent on your credit card debt. Interest rates on credit cards usually range between 16.5 percent and 29.5 percent.
The interest rate of 13.5 percent only applies for nine months.
Although the offer states you are not allowed to pay off the balance before the full nine months has expired, FNB is not penalising customers who choose to do this.
The reduced interest rate applies only to the amount you choose to transfer as part of the offer and not to any further purchases using your credit card.
You will qualify for the balance transfer offer if you have an existing FNB credit card and sufficient funds in your budget credit facility.
New customers can apply for an FNB credit card but would have to qualify for the required credit available on the budget facility in terms of their affordability.
Both offers expire at the end of this month.