Sometimes understanding the industry jargon can be half the battle, that’s why we’ve created this superb section detailing everything about 0% Balance Transfer Cards. If you already have a credit card and are paying interest, a balance transfer card may be a good option for you.
In basic terms, a Balance Transfer Card is for moving any ‘existing’ debt from one provider to another. This is usually done without paying any additional interest for a set period. For example, let’s say you have a credit card with a balance of £5,000. You may be able to ‘transfer’ this debt using a balance transfer card.
Depending on the provider you select, your ‘new’ card may have an interest-free period. In this example let’s say its 6 months interest free, this means you will only ‘pay off’ the £5,000 without interest for the first 6 months.
Of course, this gives you a better chance at reducing the balance if you’re not paying additional interest. You should remember though, this interest free period will not last forever, as soon as it comes to an end you will have to pay the agreed interest rate once again.
Before getting a 0% Balance Transfer Card, there’s a few things you need to remember:
You will normally have to pay a fee to transfer your balance – this amount will vary, however it usually ‘works out’ cheaper than any interest you’re currently paying. Of course, every situation is different, so you will need to work this out according to your own budget and circumstances.
Normally you can’t transfer a balance from one card to another if they’re issued from the same provider. For example, you can’t transfer a balance from BANK A to BANK A, it has to be BANK A to BANK B.
It’s also worth mentioning ‘some’ providers won’t let you transfer amounts in the same banking group, this means if BANK A and BANK B are owned by the same parent company, a transfer may not be allowed. You would have to transfer from BANK A to BANK C (outside of the group) in this scenario.
Some providers may also have ‘additional’ stipulations, for instance if you miss a monthly repayment or your payment is late, your ‘interest free period’ may end, or a higher rate of interest could be applied. Typically, it’s a good idea to set up a direct debt where possible so you don’t miss a payment. Remember it’s always recommended to read all documentation before agreeing any contract.
If your current credit card has a variable interest rate you need to calculate how much you could potential save (or lose) by switching to a 0% balance transfer card. In some cases, if you have a fixed interest rate, then the ‘savings’ of moving provider may not work out in the ‘long run’ if the interest rates increase.
If you open a balance transfer credit card with a new provider, remember that some companies request you ‘transfer’ the balance within a set period time. Usually this is within the first 60 or 90 days of opening the account, if you fail to meet this demand, your new account may be closed.