How Do 0% Balance Transfer Credit Cards Work?
0% Balance Transfer
Best Buys
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» 0% on balance transfers
for 15 months (% fee) |
0% purchases for 3 months Why? "Best-buy topper offering the best 0% balance transfer deal available - 15 whole months!"
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» 0% on balance transfers
until (% fee) |
Then, 0% on balance transfers from Aug 2009 until 1 Feb 2010 (% fee)
0% purchases until Why? "13-month long 0% balance transfer offer plus even more 0% from August 2009 for 6 months until 1st Feb 2010.
Mint now comes with a competitive standard interest rate for keeping the odd-shaped plastic in your wallet well past the 0% expiry dates."
% APR
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» 0% on balance transfers
until (% fee) |
Then, 0% on balance transfers for 5 months in 2010 and 2011 (2.5% fee)
0% purchases until
Why? "Super long 0% balance transfer deal for up to months, with a second-year and third-year helping too!"
% APR
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0% Balance Transfer FAQ's
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0% balance transfer credit cards are the 'debt managers' of the credit card world.
To attract customers some companies will offer a '0% balance transfer', meaning that if you move current outstanding debt from your existing card onto their credit card, they will not charge you any interest on that debt for a certain period of time.
This relaxation period, where you will not be charged any interest, will typically range from a few months to up to 15 months on some of the longest 0% balance transfer deals.
What does a zero-percent balance transfer really mean?
The main advantage of 0% balance transfer credit cards lies in the short-term relief they give you from mounting debts.
These kinds of deals are fantastic for anyone with a big bill on their card: with the burden of interest temporarily dropped, you can work at reducing your debt to a more manageable level - or hopefully getting it repaid in full.
- How long will it last?
The duration of the 0% balance transfer interest period largely depends upon the card you choose.
When 0% balance transfers first entered the UK market, the 0% interest period of grace was at a maximum of six months.
In relation to a number of factors, mostly on the level of competition in the credit sector, you can now get 0% balance transfer credit card deals which last for up to 15 months.
The current longest deal available is fifteen months (on the Virgin credit card); most such offers last between six months and a year. Other lengthy 0% balance transfer deals can be found with Mint (14 months), Barclaycard Platinum (14 months), Egg (13 months), Royal Bank of Scotland (13 months), Natwest (13 months), Tesco Finance (13 months) and Citi (12 months), among others.
One point to be aware of here: the day you open your new account is usually the day the offer starts from.
In other words, you want to transfer your debt over to your new account as soon as you have opened it.
If you don't, you will still be paying interest on the old account, and the time will already be ticking down on your new account to when it's 0% period ends.
- What can it do for me?
0% balance transfer credit cards offer an excellent opportunity to get your finances in order and lower your outstanding debts or get them repaid in full.
The money that you would ordinarily have to spend on servicing the interest charged on your debt can now be put towards reducing your principal balance (the actual lump you owe).
Suppose the interest on your old card was costing you £50 per week, and you were just about keeping up with paying this interest charge. If you get a 0% interest deal for six months, that's basically £1200 you have saved. If you're smart, you will have pumped that £1200 back into your account, and reduced your overall liability. No, not £1200 for shoes, reduce your principal!
- Oh yeah? What else?
If you don't have a big debt, 0% balance transfer credit cards can also give you a short-term loan at zero percent interest.
This is often termed as 'stoozing', and involves moving the 0% credit to a bank account (if the card allows you to do this - see our article on MBNA Platinum Plus Credit Card, and Making Money through Stoozing).
You can then choose to use the money like a loan, and simply make monthly repayments to clear the debt, or you can put the cash in a high interest savings account, make the minimum monthly repayment on the 0% credit owed, clock-up some interest from the savings account, and then pay back the entire 0% credit just before the 0% period ends.
On the face of it, that's a great deal, or a cunning way to make a little money back from competitive credit card companies.
But stoozing is risky: you need to be exceptionally diligent with your finances, and it's very important to pay back the money in the 0% period or you risk losing the money saving benefits.
So what's the catch?
The reason why banks and other lending institutions come up with 0% balance transfer deals and similar incentives is that they want to lure you from competing credit-card issuers.
It's a war between themselves, and overall makes for a good deal for you.
So most often, there really isn't a catch for the consumer.
But take a good look at the terms and conditions before moving your debt from one card to another: remember to take into account transfer fees and how the payments you make to your account will be allocated to the different balances - balance transfer / purchases / cash transactions.
Other factors you should be aware of
- Balance transfer fees
The days of free balance transfers are all but over, and free balance transfers now can only be found on offers that charge a low (not 0%) rate of interest until the outstanding debt is paid in full.
Banks were losing too much money from the "completely free" 0% balance transfer deals, and now a fee is invariably charged for transferring your credit card account.
This cost varies, and is usually dependent on the size of the balance on your current card/s. The average transfer fee is around 2% - 3% and is payable to the card issuer you are moving your balance to.
Sometimes 'capped transfer fees' are offered. This means that no matter how large your outstanding liability is, you will not have to pay over a certain amount to transfer your balance. Such fees, where offered, are usually capped at between £50 and £100.
Capped fees are usually found on shorter 0% balance transfer offers - you will have to get your calculator out and work out which deal is best for you.
- The Terms and Conditions !
You will have to abide by whatever rules are laid out when you sign up to a zero-interest balance transfer deal, or else you are likely to be drummed out of the scheme and have to start paying interest at the standard rate.
One common condition is the minimum monthly repayment that you will be obliged to pay, and typically this will be around 2% of your outstanding balance.
Another rule is: you will have to stick to your credit limit.
If you don't play by the rules set out in your agreement, you could find yourself in trouble with the credit card guv'nor - and most likely without a 0% interest rate.
These rules won't be too hard to keep to though. If you make sure you know what they are before you sign up, you should be fine.
- The end of the promotion - back to interest payments
0% balance transfer periods don't last forever, and while they do give people with large credit card debt some time to get things under control, they will come to an end.
The best thing to do is to set a plan before this holiday from interest begins - decide either to clear your balance entirely, or to halve it - then work out exactly what this will entail in terms of weekly payments.
And if you have no chance of clearing your balance by the time the offer ends, make sure that you are in a position where you can deal with what's coming, you may want to consider moving the balance to another 0% balance transfer credit card deal, or moving it to a life of balance transfer credit card deal that offers a lower than standard rate until the balance is repaid in full.
- How do I sign up to a 0% balance transfer deal?
Compare the offers. This information can be difficult to come by: you might miss the best offer available. So check out our compare 0% balance transfer credit cards page, which always has the latest, most up to date information on the various offers around.
Look at other factors involved. For example, if you also want to spend on the card - does it offer 0% on purchases too?
In addition, you should look at how much the transfer fee is going to be and what the standard interest rate (or APR) is once the 0% period has finished.
- Apply online for 0% balance transfer
Once you've found the best 0% balance transfer credit card for you, applying is easy.
The websites are listed on our 0% balance transfer credit card comparison page and you can click straight through via the 'apply now' buttons, or click the 'more details' buttons to read our review of the card.
Applying itself will simply be a matter of filling out a form, and will take a matter of minutes.
A decision on your application should take only a few days, and some cards may even offer you an instant decision online.
- Moving over to your new card
Once you're accepted for a 0% balance transfer credit card, you'll need to set up transferring your existing card balance (or balances) to the new card.
This can sometimes be done during the online application process. If not, you will be able to use Internet banking, telephone banking or balance transfer forms sent out with your new card to seal the deal.
Remember to transfer your balance as soon as possible: you will be frittering money away needlessly while you procrastinate. And in any case some offers have a window of opportunity, where you have to transfer your account within 30 days (or some similar timeframe) to avail of the 0% offer.
Compare 0% balance transfer credit cards
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