Credit Card balance transfers are very popular in Australia at the moment. Deals of 0% interest charge for 6 months and no annual fee are common. You can take an existing credit card balance, which you may be paying interest on and pay it out with a balance transfer at 0% for 6 months. But are they a good deal?
The Cons
- Here's the obvious one. When the party is over 6 months later, you may end up in a worse position than you are now: still owing the same balance but at a higher interest rate.
- Balances on credit cards are repaid in a specific order, determined by the rules set by the financial institution. I'll bet that in all cases (certainly in all cases I've seen), the lower interest rate amounts are paid out first. (See this fine print for an example - Payments made to your ... Credit Card are first applied to any amounts transferred from other cards, before they are applied to any other cash advance or purchase amount. This means that the portion of your outstanding account balance that's subject to a lower interest rate will be paid off first.). This scenario can play out in two ways.
- After performing the balance transfer you accrue purchases on your card. On the next bill you will need to pay out your balance transfer in full before you can start to pay off those charges. The alternative is to incur interest charges on the purchases.
- Conversely, if you are transferring to a card that already has purchases you will be in the same boat. It's not the date of the transactions that matter. The bank will pay out the balances that are less valuable to themselves first.
- Interest free for 6 months does not mean nothing to pay for 6 months. You will still need to meet the minimum payment amount for each bill, or face penalties for late payment.
If you reckon you can trust yourself with a burning hot credit card in your skyrocket then you might want to consider snapping these goodies up whenever they appear. The best plan is to keep one card for day to day transactions. This card should be the one with the longest interest-free period, not necessarily the lowest interest rate. The interest rate doesn't matter as you should always pay it off in full each billing period. If you can't do that then you are living outside your means. All of the other cards, the ones you take balance transfers from, are just vehicles for what is effectively 6-month interest free loans.
What's the risk?
The risk is the burgeoning accrual of debt. These will all need to be repaid. If you want to avoid any charges they'll need to be repaid in lump-sums. The time-frame is quite short, so if you went off and bought investments with the borrowed funds you'd need to be doubly-sure you could exit in a timely manner and at a position of your choosing.
What's your experience with credit cards? Pop in a comment and share your thoughts.
I just saw an interesting advert ... "Have you been disappointed with SourceForge lately? So have we! Try out the latest member of the Javalobby Network and host your project with Subversion at JavaForge!"
Hey that sounds good. So I rock over to JavaForge and click the sign-up link:
HTTP Status 404 - Invalid path was requested
type Status report
message Invalid path was requested
description The requested resource (Invalid path was requested) is not available.
Apache Tomcat/5.5.17
Oops, not a good start. :)
How do you eat your pizza: folded, flat or with a fork and knife?
Submitted by danimass.
The method varies, but it must have heaps of crunchy anchovies and pepperoni.
Asteroids with floating disembodied American conservative politicians. There's a version where you can blast the democrats too, but there aren't enough liberals in this god-forsaken world as it is, so if you want that version you'll have to hunt for it yourself.
Marky writes - What is the ideal gearing ratio?
The right gearing is one that provides the best balance between ROI effectiveness and risk. It's particular to the particular asset class, quality of the assets and the comfort level of the investor.
Stock, being of higher liquidity, is more volatile than property. Shares will rise and fall daily. They can rise or fall steadily over time. They can be frozen out of the market, and they can rise or fall dramatically in a matter of minutes. The risk on them is pretty severe and margin lenders will place a margin call ratio of between 70% on good stock and 0% for dodgy stock (meaning they wont consider them as security at all). This means once you owe more 70% of the stock they'll sell it from underneath you, pay out your loan and charge you for the privilege. So the appropriate level of gearing against a stock portfolio depends on the types of stock you want to purchase. Personally, I had only good shares in my portfolio and I geared to 60%.
Property is a different fish. It's highly illiquid. It's value is stable and generally assumed to increase over time. (Of course recent trends in Sydney have proved this wrong). Lenders are happy to place a higher level of gearing against such a stable asset class. Around 80% is the figure lenders are happy with. Of course, this too is tempered with the quality of the property. Crap houses in bad suburbs will afford less lending leverage. Big mansions in fancy la-di-da suburbs can be geared to the teeth (if you can afford it). The great thing about property is that you can borrow against particular properties, not just your portfolio overall. You can gear against as much or as little of the property portfolio as you wish.
The question of investor age often comes into the equation. The idea is that the younger the investor, the more risk they should acquire. If the risk pays off then the early capital growth will contribute favourably to the portfolio over the coming decades of the investor's life. If it fails, then there's plenty of time to try again. Every investor should be aware of this in order to find the level of risk they're comfortable with. However, I don't think this outlook should prescribe a gearing level for anyone based on their age. I think younger investors will naturally feel more comfortable with a riskier approach.
Let me know what you think. And while you're at it let Marky know too. :)
Ubuntu Linux!
Because it's bold & beautiful. It can do everything Windows can. It can do everything Vista promises and more! It's free. It's Open. It's sexy.
It's official. I'm 100 years behind the times. Truth is, I've only just discovered Pandora.
Pandora is an Internet radio station that personalises the playlist for each listener. I have a station called JemBot, which is seeded with artist like UFO, BNH, Nitin Sawhney and Les McCann. The clever thing about this is that the choice of music played is derived from data in The Music Genome Project. Each track is dessicated into its 'genetic' make-up and similar songs are played in the radio station.
For example, my radio station just played Dream on Dreamer by Brand New Heavies (a classic!). When I ask 'why did you play this song?' of the service I'm told: based on what you've told us so far, we're playing this track because it features funk roots, flat out funky grooves, acoustic rhythm piano, demanding instrumental part writing and extensive vamping. You just gotta love that extensive vamping!
With each new track I get the opportunity to thumbs-up or thumbs-down the track, further refining the genetic make-up of songs that I like. This is the same sort of mechanism used by StumbleUpon to discover random web sites.
It's got a great UI and is an example of how to have a user-focussed experience on the web. (It uses Flash).
My wife is keen on the service too, but its yet to play the songs she really wants to hear (the one's she seeded her station with). The radio license Pandora has precludes it from playing particular tracks on demand.
I'm discovering some awesome old music. Some super tracks found on my first day include:
- I Think I'll Call it Morning, Gil Scott-Heron, “Pieces of a Man”
- Compared to What, Les McCann & Eddie Harris, “Swiss Movement”
- Cold Duck Time (Live), Les McCann & Eddie Harris, “Swiss Movement” - I guess I have to get this album!
- Monaco (Alternate Take) (Live), Kenny Dorham, "The Complete 'Round About Midnight at the Cafe Bohemia" - Woah, what a title!
Seine. It's the river running through Paris. I was crossing a bridge over the Seine in 2003 and wondering what I would call my WoW character when it was released. I saw the river and thought that would be a good name.
Trouble is I'm not sure how to pronounce it. I think its "Sen".
If you get spammed by an Australian company, dob them in at the Australian Communications and Media Authority! I just dobbed in JetStar, who continues to spam me even though I've unsubscribed from their distribution list.
