Zeroing In On 0% Balance Transfer Credit Cards
Have you lost count of the number of credit cards you hold? Is your doormat covered each morning in envelopes from companies you have lost track of?
Then you need to look at putting all your credit card debts in one place. If you can transfer your debt to one credit card offering a 0% rate of interest for an introductory period, then even better.
Rest assured that if this sounds familiar, you are not alone. Anyone with a half decent credit history receives numerous invitations to become what is often called a 'rate tart' - transferring balances between cards to take advantage of lower rates of interest.
This can be a tempting prospect, especially when the introductory rates are 0% for a limited time period. But there is often more to these 0% deals than first meets the eye.
Get your debts in order with a 0% balance transfer credit card
It is tempting to run up debts on different credit cards. Having a wallet or purse full of credit cards can make you feel wealthy. But beware - the more credit cards and store cards you collect the harder it is to keep track of them.
Monitoring the range of interest rates, minimum payments required and payment dates can eat into your valuable spare time. If you miss payments, the penalty fees are up to £12 a time. The solution is to transfer balances on the cards to one account, minimising the interest rate and administration.
Why pay interest on your debts when you can get if for free
Transferring the balances on your credit and store cards to one account helps you manage your debts more easily. And if you find the interest rate you pay, commonly known as your annualised percentage rate (APR), is rising, then just transfer your balance to another card.
So how do I choose a card?
Without a doubt, paying 0% interest is a lot better than paying the high interest rates charged on some cards, which can sometimes be as high as 29.9%.
The variety of interest rates on credit cards can be staggering. The introductory 0% rate is often offered for between six to 12 months on balance transfers, and sometimes it is just on any new purchases you make with the card.
Sometimes it is even on both!. While you might pay zero interest on the balance transfer, one pitfall to look out for is paying a high interest rate on any new purchases that you might make with your new card. It is always worth shopping around.
Moving cards around sounds too good to be true
In many ways, it is. If you do it too often then you can pop up as a high risk borrower when companies check out your credit history. You also have to take account of the length of the 0% interest rate period, and the interest rate that applies afterwards.
If you fail to pay off your debt, you could be stung by a hefty interest rate when the deal expires.
When is a 0% balance transfer not a free balance transfer rate
Many companies are imposing switching fees now to defend themselves against rate tarts.
You may have to pay a balance transfer fee of up to 3% to your new card provider in order to switch to a cheaper card. If you're heavily in debt, therefore, it may make sense to consider credit cards that offer low interest rates 'for life'
Transferring your credit card balance is a solution, not a cure
Putting all your credit card debt on one card is not a long term solution. If you cannot clear your balance each month then you should plan to be debt-free as soon as possible, whether in six months, one year or 10. Balance transfer cards can only give you a breathing space. Your debt still has to be repaid at some stage.
Five things to do before you consolidate credit cards
- Compare the rate of interest you are paying on your credit cards with those available elsewhere in the market
- Double-check whether the 0% interest rate applies to transfer balances, new purchases on the card, or even both
- Look at the rates of interest payable after the 0% period ends and compare charges for late payment, minimum balances payable, etc with those you face with your current credit cards.
- Check what penalties you will pay to your existing credit card lenders to transfer
- Plan how to pay off all your debt over as short a period as possible
- Stick to your budget and don't be tempted to get into more debt!