Reality of 0% balance transfer cards & how they may help with debt!

By Natasha Culzac
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You can save yourself hundreds of pounds by taking advantage of a 0% balance transfer card - but be beware the pitfalls.

“So, nought per cent balance transfer cards….” said no interesting dinner guest ever. Try not to fall asleep as we explain what these are – it might not be a riveting conversation, but you’ll be thankful for the information in the future, trust us.

Many of us have a good number of purchases whacked on the ole credit card. Your balance might be £200 or it might be £2,000, but either way you’re likely trying to pay it off bit by bit. Ask yourself this: are you finding it hard to contend with the monthly interest charges? Is your credit card’s APRs tickling the 20% mark? If so, and you’re serious about paying off your balance once and for all, it might be worth switching to a new 0% balance transfer card.

 

What’s that when it’s at home?

A balance transfer is exactly what it says on the tin – a transfer of your entire balance from one card to another, usually a competitor. A 0% balance transfer deal means that for a specified period of time you won’t pay interest on that money – and this could be as long as three years. Card companies have all sorts of offers and temptations to lure you over to them and this is just one weapon in their arsenal.

Sounds too good to be true!

It can really help you out if you’ve decided you want to pay off a credit card over the next 1-3 years and could literally save you hundreds of pounds in interest. Every payment you make towards the card will go on the actual balance and not be swallowed by interest – imagine!

There must be downsides?

… As with anything in life.

- Firstly, there is often a fee for your new card provider to take on the balance. This could be anything from 0.5% to 3% of the total you are transferring, and can be related to the length of the interest-free introductory period. Make sure you are aware of what this fee is and that you calculate what this cost will be relative to you. For example, 3% of a £2,000 balance is £60 – however it might be worth it if you save hundreds in interest.

- Be aware that for many of these deals, the 0% interest offer only applies to the transferred balance and not any new credit card purchases you decide to make afterwards. These items you would have to pay interest on.

- A card firm will start making decent money from you if you don’t pay off your balance before the end of your 0% interest period. Once that set time is up, any balance left on your card will be subject to interest. If you’re serious about managing your debt well, then the idea is to pay off that sum before interest starts getting charged on it – rather like an interest-free loan.

- Your new card will have to have a limit that is at least the same as, but preferably more than, the balance you are transferring over.

- Switching cards should only be done minimally. Chopping and changing your credit cards too much can hurt your credit score.

Things to think about

There are some nice-looking cards out there which, for example, offer a 0% balance transfer rate for 20 months, as well as a 0% transfer fee AND 0% interest on any new credit card purchases for six months. For sexy cards like these you will likely need to have a very good credit score.

Make sure you look around for the good deals but do not apply for tonnes of cards because this will hurt your credit score. Instead, you can get pre-approved for cards by using online tools such as giffgaff’s credit card comparison or Moneysupermarket's 'smart search'. Neither of these will leave a footprint so they are healthy for your credit score, yet they will still be able to match you with offers you’ll likely be accepted for.

Lastly, make sure you shut down the former card that has been paid off! This is so that it doesn’t tempt you into falling further into debt.

Top Takeaway

0% balance transfer deals are great if you are currently trying to pay off a card balance but are struggling to make a dent due to interest charges. These offers work best when you manage to pay off your balance by the end of the interest-free period, meaning you would have saved yourself potentially hundreds of pounds in interest alone. However, if you miss that cut off line you could be stung with even higher rates of interest so be careful and do your research beforehand.

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