Finance Tips

A 0% Balance Transfer Credit Card usually refers to a credit card that offers a new user or new cardholder a 0% interest rate for the first six to twelve months after first using the card. Usually, the 0% interest rate is a “teaser” rate that is used to persuade people to use or avail a certain credit card. This comes after a credit card holder transfers balances from one or more unpaid credit cards to the current card. Then the creditor has to pay for those debts using the new card.

Issuers like banks, generally charge balance transfer fees to reimburse the costs they incurred in handling the transfer of the unpaid debt to the current credit card account.

To take advantage of the 0% interest rate that this type of credit card offers, a cardholder must try to transfer debt balances to his current card, then paying for them as quickly as possible. Issuers of this type of card typically offer 0% interest rates on periodical payments for up to twelve months after first using this credit card.

Things to Take Note Of:

Applicants for balance transfer cards should take note of the following facts regarding this type of credit card:

1. Some card issuers disallow the transfer of debt balances from high interest accounts to this type of card during the introductory 0% interest rate offer period.

2. A handful of issuers of this card charge high balance transfer fees that cost as much as $50.

3. If you incur a late payment for even a single payment period, several issuers automatically charge cardholders with very high penalties. What’s worse, they could immediately revoke the 0% interest rate privilege and change your card to a variable annual percentage rate (APR) card just for one late payment.

4. Issuers may charge the credit card holder very high interest rates right after the introductory offer period expires.

How to be a Responsible Balance Transfer Card Holder

If you want to take advantage of the short-term introductory benefits of a 0% interest balance transfer credit card, take note these simple tips:

1. Do not apply for this card if you are going to transfer small amounts or a zero balance debt for a previous account.

2. Make sure you choose a credit limit that suits your needs and at the same time complements your current financial status. The issuer conducts credit investigations to determine your ability to pay and the credit limit that you can handle.

3. Understand the long-term details of credit. Make sure that you can handle the interest rate and rigidity of the payment scheme after the introductory 0% interest rate period.

4. Quickly pay for the balances during the introductory 0% interest period. If you are going to take advantage of the 0% interest rate, make sure that you can pay for the balances during the introductory period. This is especially needed whenever a credit card holder transfers a balance from a previously high interest card.

5. Do not transfer large balances to your 0% credit card if you cannot pay for them before the end of introductory period. Failure to pay for the balance would result in the cardholder having a much larger amount to pay for compared to the original balance he wanted to eliminate.

Make sure you understand the costs you will have to incur and deal with using your new 0% balance transfer credit card. Read the fine print in the card’s credit terms to make sure you will not get into financial trouble.

0% balance transfer credit cards are a type of interest free credit card which allow you to pay zero interest on your debt for a fixed period of time, meaning it can be a cheap way to pay off debts if you can navigate the system to your benefit. However, while these credit cards can be very useful in certain circumstances, if you’re not careful they could equally lose you money. Here are the dos and don’ts of 0% balance transfer cards.

DO: Compare offers

Different providers offer different terms on their 0% balance transfer credit cards. Shop around for longer interest free repayment periods, lower interest rates once the offer is over and lower transfer fees where possible. It might not seem important right now, since you will not be paying any interest at first, but these factors could save you hundreds of pounds later on if you find yourself unable to pay off the balance within the promotional interest free period.

DON’T: Ignore transfer fees

Transfer fees are now standard on the majority of 0% balance transfer cards. This is because providers want to avoid customers taking up the interest free offer, failing to pay off their debt within the promotional and simply switching card supplier each time the interest free offer expires. Balance transfer fees vary from card to card but are usually around 2.5% to 3% of the total balance owed. Look for the lowest balance transfer fees possible when comparing credit cards.

DO: Be realistic

Be completely honest with yourself about how long it will take you to pay off your debt. If you know you can realistically pay it off within the interest free period, it could well be a good idea. If you’re not sure then you need to be wary of 0% balance transfer credit cards – leaving your debt for longer than the interest free period could costs you high interest repayments, the average interest on credit cards being around 17.5% in the UK. If you run out of time and choose to move your debt, meanwhile, you may be met with the alternative cost of the card’s transfer fee. If you don’t really know how long it will take to pay off your debts, a lifetime balance credit card might be more appropriate.

DON’T: Make purchases

Unless your 0% balance transfer credit card terms specify that the card is 0% on purchases, the likelihood is that you will have to pay very high interest on any purchases you make with the card. Even if the card does specify ’0% on purchases’, many customers don’t fully understand the conditions attached to this. Certain purchases could still carry high interest rates, as could instant cash transactions, such as cash withdrawals, so people often inadvertently trigger these expenses simply due to not understanding the terms and conditions attached. Also, making any purchases will increase the overall debt and make it harder to pay off the balance before the end of the promotional interest free period.