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Credit cards offering 0% interest rates on balance transfers and purchases may seem like a great idea, and if you're careful to pick the right card, and use it wisely, the savings are big.
Unfortunately, the cards are often loaded with sneaky small-print that could cost you.
If you want to make sure your money stays in your pocket and you get the most from your credit card, read on.
Promotional Credit Card Offers
1. The Offer: "0% on balance transfers for 12 months and 0% on purchases for 3 months".
What to watch out for: On the surface, this may seem like a great deal. You'll get a staggering 12 months interest free on your balance transfer, and a 3 month interest-free break on your purchases.
The reality however, is very different.
Let's say you transfer £4,000 to the 0% deal on your new credit card, and then you buy yourself a new TV on the same credit card.
0% on purchases for 3 months right?
Right, but once the 0% purchase rate ends, your new TV is going to start accruing interest at the standard rate, usually around 15.9% APR.
Then, to make matters worse (for your bank balance) you won't be able to repay the purchase of your new TV until you have first repaid all of your £4,000 balance transfer.
This is a worse case scenario, and only happens if the allocation of payments on the credit card repays 0% rate balances before any standard purchase or higher rate cash withdrawal balances.
So remember to check the terms and conditions of the credit card to find out how they will allocate your payments (this is normally under a header in the small print entitled 'Allocation of payments').
The solution for these credit card offers: By all means make use of the 0% promotional deal on balance transfers, but do not use the credit card for any purchases or cash withdrawals.
The 0% deal on purchases may seem tempting, but if it's a lot shorter than the balance transfer offering, you'll be wise to steer clear of using the same card for purchases.
Alternative credit card offers: Look for a credit card offering equal lengths on 0% promotions for balance transfers and purchases.
They aren't always as long, but there are many credit cards still offering 0% rates for 9 months on balance transfers and purchases.
However, even these credit cards are not suitable for cash withdrawals, as any cash transactions you make will be charged interest until your 0% balances are repaid (in the case that the allocation of payments repays introductory, promotional or lower rate balances first). It is always advisable to use a debit card for cash withdrawals.
Compare 0% introductory rate credit cards, which offer 0% interest rates on balance transfers and purchases - just remember to pick a card offering equal promotional periods.
2. The Offer: "0% or low rate balance transfer deal with a standard purchase rate"".
What to watch out for: A very pleasing deal at first glance. But if the allocation of payments repays introductory, promotional or lower rate balances first, you should not use these credit cards for purchases.
Any purchases or cash withdrawals you do make on the credit card will accrue interest charges until you have repaid your promotional balance transfer in full.
The solution for these credit card offers: Don't be afraid to make use of the balance transfer deal, they can save you a heap of money in interest charges.
Just make sure to hide the credit card away at the back of your bottom drawer and do not use it for purchases or cash withdrawals until you have repaid your balance transfer in full, or the promotional period has finished.
Alternative credit card offers: Some cards now offer equal length promotional offers on balance transfers as well as purchases.
These credit cards offer a nice way to clear up any outstanding credit card balances, whilst still being able to enjoy 0% interest rates on any new purchases you choose to make.
Just remember to use your debit card for any cash withdrawals, and not your credit card as cash withdrawals almost always incur a much higher interest rate than the rate you get for purchases. In addition, interest starts being charged immediately, rather than after the usual interest-free period.
Compare credit cards offering 0% on balance transfers and purchases - just remember to choose a card offering equal 0% periods.
Safer 'Promotional Balance Transfer' Solutions
There are safer solutions you can opt for, which will allow you to make good use of any promotional balance transfer deal, whilst still being able to use a credit card for any purchases you may want to make.
Safer solution 1:
Choose a credit card that offers equal length 0% promotional deals on balance transfers and purchases.
This way you can save money by benefiting from the 0% balance transfer deal and also benefit from 0% interest rates on any new purchases that you may want to make. And, without the worry of your purchases accruing interest while you try to repay your balance transfer. Then just remember to use your debit card for any cash withdrawals.
Safer solution 2:
Find the best promotional deal on balance transfers, and then get a second credit card for any day-to-day purchases that you may need to make.
We advise you to get a 'cash back' credit card if you will repay your balance in full each month, or a 'low purchase rate' credit card if you will carry a balance from month to month.
This way you can reap the rewards from your balance transfer deal and pay for your purchases on credit, whilst still being in control of repaying both balances.
And it goes without saying; use your debit card for any cash withdrawals!
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