There is nothing simple about credit cards and balance transfers. It is about how you use your credit card, especially if you do a balance transfer between different credit cards, and how credit card providers have three different types of money. I know that sounds strange but credit card companies divide your balance up between balance transfer money, money for normal spending and cash money withdrawn on your credit card from the ATM.



Why do credit card companies have 3 different types of money? You wont be surprised to learn the answer to this is; so they can charge you different interest rates and make more profit form every single credit card holder. Lets take a look at each variety of credit card money in turn to help you become as savvy with your credit card money as the credit card company is in taking money off you.





Good old fashioned cash money. Imagine you are abroad on vacation and you need some cash in hand for daily expenses and souvenir shopping. You head for the ATM and take some Euros or Pounds on your credit card. But would you think again if you knew.



You start being charged interest from the moment you withdraw the cash. Even if you pay up your credit card balance in full on or before the due date you will pay interest on this cash.



The interest rate you will definitely pay is probably higher than your typical APR on that cash withdrawal.



The cash money withdrawal will be the very last part of your credit card balance to be paid off.



Pretty scary isnt it? Best advice when it comes to credit card management is DO NOT TAKE CASH. If you cant help it then get straight on to a credit card comparison website and find a credit card to which you can do a balance transfer and ideally get a zero interest deal. Even the setup fee will probably not be as much as the interest you will inevitably pay before you can eliminate your credit card balance.



Balance transfer money. Assuming you transfer a balance from one credit card to another in order to take advantage of a zero or significantly lower rate of interest this will be the cheapest form of money as far as your credit card company is concerned. Because it is cheaper it will be the first money to be paid off. Say you applied for and got a new credit card and transferred $2,000 over from your original credit card, made a $800 purchase and withdrew $400 from an ATM. You cant afford to clear the $3,200 in full at the end of the month, so instead you plan to repay $300 each month. However, rather than being charged interest at one rate, you are charged 5% for the transferred balance, 16% for the purchase and 20% on the cash withdrawal. You can bet your card provider will use the $300 you pay off each month, to clear the balance transfer first the last debt to be repaid will be the $400 you took as cash money, and that is the balance you are charged the highest rate of interest on.



Spending money. Always bear in mind when you buy that large screen TV or granite countertop that by the time you have repaid your credit card interest the price may even exceed the discount offer that attracted you to it in the first place. You will be charged your typical APR on this type of money unless you can find a balance transfer deal that treats both types of money the same and good luck with that.