Q&A

Answer a question


Do you want to follow this topic? You need to be signed in for this feature
Do you want to save this article to read later? You need to be signed in for this feature


what does 0% balance transfer actually mean?

3
Answers


Do you want to answer this question? You need to be signed in for this feature

Answers




It means that you will be charged 0% interest on the amount of money you transfer during the alloted time period. So if you transfer £1000 from a credit card to cover your bank overdraft you credit card will not charge interest as long as you are making at least the minimum payment each month. If this is until a specific date (say 30 June 09) you have until that date to clear the £1000 to zero on the card. Problems are -you normally get charged a transfer fee (usually 3% so £30 on a £1000 transfer) -many of the cards will charge you interest at their very high cash withdrawal rate if you every miss their specified minimum payment -at the end of the specified period if you haven't repaid the full amount many will also charge interest on the full £1000 until it is all repaid even if you have cleared a large portion. -and worst of all due to rotten payment hierarchies many cards apply your monthly payment to the lowest interest transaction ahead of the higher ones so you will still be charged interest for purchases made if you are not clearing the entire balance on the card each month. To get round the problems -never use you balance transfer card for any purchases and clear it to zero a couple of weeks before the end date -make a couple of small balance transfers rather than one big one especially if you are unsure whether you will be able to clear everything. (i.e. 2 transfers of £500 done on different days rather than 1 transfer of £1000) Just make sure you watch out for the minimum transfer fee (often £3)as you don't want to incur more fees than you have to. -set up a reminder to warn you when the end date is http://www.moneysavingexpert.com/cards/credit-card-tart AND do your calculations in advance and check whether you are actually going to save that much - when interest rates were higher on my mortgage it was worthwhile as I could transfer £5000 to mortgage account and save about £50 per month in interest. Now the rates have dropped the saving is so minimal it's not worth the hassle.



It means that you transfer any credit card debts that you have onto a new card and an extra, say, 3% is added as a charge. Then there is no interest to pay on that balance for the balance transfer period. That sounds good, but any payments that you make will go towards clearing that debt first, so any new transactions will automatically get charged interest from day 1. If you have substantial card debts it can be a good way of cutting your interest bill but only if you use one of your old cards for any continuing spends and pay that card off in full each month, while paying off more than the minimum on the new card each month as well. Aim to clear at least one third of the balance within the 0% period (preferably all of it) and hope that there is another 0% balance transfer card available when the 0% period ends so any remaining debt can be transferred onto it. Bear in mind that you will not be able to transfer between cards within the same group (Virgin, for instance, is issued by MBNA, who do a lot of cards under other labels). Making a success of a balance transfer requires a lot of discipline.



Also helps if you shred your designated balance transfer card - then there's no problem about using it for purchases. And when it's clear cancel the card. That way in a year or so you could apply for the same card and get the introductory 0% offer again.