0 Balance Transfers | Credit Awareness

Posts Tagged ‘ 0 balance transfers ’

0% Balance Transfers - Financial Panacea, or Credit Trap?

Saturday, October 4th, 2008

In theory, considerable amounts of money in interest payments can be saved by transferring your balance from a credit card that is incurring interest charges, to a 0% on transferred balance card.

This may not, however, be the financial panacea that it seems.

When the first 0% on transferred balance cards were first introduced, the card suppliers hope that it would pull in business from their competitors, which indeed it did.

The only problem for the credit card providers was that savvy borrowers switched their balance again, before the end of the 0% period. To get around this, the banks introduced a few measures aimed at increasing their profit… at the cost of the borrowers! – We reveal a few of these ‘tricks’ here.

1) Transfer fees…

Right, these days when you want to switch the balance of you credit card, you may incur a fee to do so. Now, this fee is usually in the for of a % of the balance being transferred, and is often in the region of 2.5% to 3%. So, if, for example you are transferring £3000, then it could cost you around £90.

Always ask your providers what their transfer fees are, because some providers actually cap this amount.

2) Does The 0% Cover Purchases?

Right, this is a basic one. Does the provider offer 0% on balance transfers only, or are they willing to offer 0% on purchases as well?

3) If you get 0% On New Purchases, What Is Classed As A Purchase?

This may sound a silly question, but when is a purchase NOT a purchase???
Some lenders have pretty strict definitions of what is, and is not covered by a 0% interest on purchase offer. Check this with your card provider prior to applying. Below are a few quick examples of what may not be covered:

1) Gambling Online
2) Cash withdrawals
3) Purchase of Gift Certificates

4) Tiered Interest Repayments

This is sometimes a real stinger! – A simple explanation of tiered interest repayments is that usually your cheapest debt is paid off first. So, let’s say that your 0% balance transfers card does not, in fact offer 0% on purchases. You transfer let say, £3000. Great! That’s £3000 free of interest, for the next 12 months (For the sake of arguments, although obviously this will vary depending on your deal). So, lets say in month 1 of the new card account, you purchase £200 worth of goods. This debt will incur interest, as it is not covered by the 0% on BALANCE TRANSFERS deal.

Now, if you pay the £200 off before the end of the month, all is cool and you have cleared the debt, right? WRONG!

As stated a moment ago, most card providers clear the most expensive debt LAST… so, the £200 you pay off your bill will in fact go towards the cheapest part of your debt, namely the £3000 that is NOT incurring interest. The £200 that you used to make purchases with the card will usually stick around, incurring interest until you clear the balance in full! – See how you can incur charges unexpectedly?

5) Rate After The 0% Period.

One final thing that you should really find out, is what is the interest rate AFTER the 0% period runs out (For any interest free deal, so if you have 0% on transfers, AND on purchases, check the post 0% rate for BOTH)

You see, some 0% cards can have excessively high interest rates once the 0% period is over. This can sometimes be around the 16% mark. Check on this, and make sure you save it (in writing). If you think you won’t be able to clear the debt before the 0% interest period is up, maybe consider choosing one of the Lifetime balance transfer credit cards instead of a 0% card.