A Guide to 0% balance transfer Credit Cards
A balance transfer is a type of credit card transaction which allows you to transfer, or move a balance from one card onto another. Zero percent balance transfer cards allow you to transfer outstanding debt from multiple credit cards to a single credit card. The added benefit here is that often, the transfer package offers 0% interest for a certain amount of time. This could therefore help save you a huge amount in interest if you currently have balances on expensive credit cards, store cards or even a current account overdraft. A 0% APR balance transfer is arguably the king of all credit card promotions, as you will typically pay absolutely no interest during the promotional period.
According to UK law, these promotional periods must be a minimum of at least six months, although some credit card deals may offer longer periods. This means that assuming you keep to the terms of the agreement, you will not pay any finance charge on the balance transfer until the promotional term expires.
All of your monthly payment can therefore go towards reducing the outstanding balance.
Once the promotional period ends, the regular balance transfer percentage will fall into place on the unpaid remainder of the balance transfer. The interest will then continue to be charged each month until the balance is paid off.
What do you need to check before you sign up to a 0% balance transfer card?
- Fees: You may have to pay a fee before you transfer your balance to a new card, this is generally 3% of your total balance.
- Credit rating: In order to qualify for a 0% APR balance transfer credit card, you typically need to have a good to excellent credit rating. (If you don’t meet the 0% transfer criteria, consider a low interest rate credit card such as 2.99% which is still highly competitive with positive benefits).
- Limits: You may not be able to transfer all of your debt depending on how much money you have outstanding.
- Previous activity: If your balance is on a credit card that is linked to a 0% balance transfer card you may not be able to move the money over.
Create a Plan
A 0% balance transfer card can’t solve your debt, so it is important that you create a clear plan to address the your monthly budgeting, ensuring you’re building a long-term secure financial future.
The most cost-effective way to benefit from a 0% balance transfer is to pay off the entire balance before the end of the promotional period, meaning you pay absolutely no interest on the balance. To calculate precisely how long this would take we recommend dividing the total amount you plan to pay back by the balance transfer period. Allowing you to know absolutely how much you need to pay per month before the promotion ends.
Not only that, but we would also advise you to avoid making any payments, cash advances or transactions until you’ve paid off the initial balance. This is because they will be charged at a standard interest rate. This will mean that instead of paying off your balance transfer, you will be paying off different debt with a far higher interest rate.
What are the benefits of a 0% balance transfer card?
- Consolidating your debt: A 0% balance transfer card allows you to take debt from a number of different credits into one single monthly payment, making it far easier to clear your debt.
- Lower interest rates: The 0% balance interest rate will make it far easier to pay off your debt, as you will only be paying off the debt instead of interest accrued.
- Terms: Moving to the right 0% balance transfer card could see you benefit from more benefits and points.
What are the disadvantages of a 0% balance transfer card?
- Purchases: It is not advisable to use your 0% balance transfer card for external transfers as they charge far more than most credit cards. We would advise keeping a separate credit card for purchases as it is extremely easy to create even more debt through purchases made on a 0% balance transfer card.
- Minimum payments: Even with a 0% interest card you will still have to pay a minimum payment every month. It is recommended to set up a direct debit to ensure you don’t miss the repayment schedule.
- Late payments: You could lose your 0% balance transfer deal if you make a late payment, have a payment returned or exceed your credit limit during the promotional period. If this happens you would have to return to the regular interest rate, but more than that, if you had two late payments in a row the card issuer is able to issue a penalty rate until you make six consecutive on-time payments. This is something to be aware of.
- High Interest rates: Lenders make the money based on extremely high-interest rates (around 15-20%) after the introductory period, so it really is extremely important that you budget to clear your debt before the deal ends. It is also important to note when the promotional period ends which is generally anything from six to twenty one months after you sign up.
Not to Be Confused With 0% Deferred Interest
Whilst deferred interest financing is similar to a zero balance transfer card it has one clear difference. With deferred interest financing, you do still get an interest free period. However, interest will continue to accrue even during the promotional period unless you pay off the entire balance. That being said if you are unable to pay off the entire balance within the promotional period, the accrued interest is added to your balance.
Is a zero balance transfer card right for me?
There is no doubt that a balance transfer card can be an extremely useful tool if you are battling a number of credit cards and struggling to pay back your debt. However, it is still important to monitor your debt closely and make sure you are making the minimum repayments within the time period. If you are interested in taking out a 0% balance transfer card compare the best deals on credit cards here.