During the last few years, 0% balance transfer cards have grown in popularity. Here is how we recommend choosing the best card.
Are you being charged interest on your credit card debt(s)? Then moving your debt to a 0% balance transfer card could save you money.
With a 0% balance transfer card, you do not pay any interest on the balance you transfer to the card. So if, for example, you had £3,000 of debt on a card that was charging you 10% interest a year, you would save £300 over the next year by switching to a 0% card.
You will also get rid of your debt much quicker, as all your payments will go towards clearing the amount that you owe, not the interest on that amount.
It’s also worth bearing in mind that some 0% card providers allow you to transfer an overdraft onto a 0% card. This is a good idea if you are paying interest on your overdraft and have the means to start paying it off.
Nowadays, the majority of cards charge a balance transfer fee, often around 3%. Although this fee is unlikely to outweigh the benefits of switching, it’s worth being aware of.
Balance transfer cards are great for clearing debts but not for making purchases. This is because most balance transfer cards operate a negative payment hierarchy.
How does this work? Say you’ve got £1,000 of debt on your 0% card, which you transferred from another card and are trying to pay off over the next year. Then you need to pay for a flight, and you decide to use your 0% card. The flight costs £100 so you immediately pay an extra £100 towards your credit card bill that month, in a bid to instantly clear this extra £100 debt you’ve just run up.
The credit card provider will put that £100 towards clearing your cheap, 0% debt. It will then start charging you interest – usually at a hefty 16% - on the £100 purchase you have just made. And you cannot clear that expensive, interest-bearing £100 debt until you’ve cleared the remaining £900 of 0% debt first.
Nationwide is currently the only credit card provider that does not operate this negative payment hierarchy, so look out for 0% cards offered by this provider, as this could save you hundreds of pounds.
Alternatively, make sure you have a separate credit card for purchases and do not spend on your 0% card. In fact, cut up your 0% card if you have to!
It’s vital to keep an eye on the clock when you have a 0% balance transfer card. This is because the 0% period will expire, usually after about a year. However, double-check this because you can get 0% cards which last for longer or shorter periods.
Once the 0% period expires, your debt will automatically be moved onto a higher rate of interest, typically around 16%.
Make sure you’ve got another 0% card lined up to switch to before this date, or better still, try to clear your debt completely before your current 0% deal expires.
If you do need a new 0% card, bear in mind that, because administration, card producing and paperwork for your new card takes time, it is a good idea to start your new 0% balance transfer application five or six weeks before your old card transfer period expires.
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