Many credit card holders choose to transfer their card balance periodically, in an attempt to avoid potentially monstrous levels of interest payments. The availability of 0% balance transfers to UK credit card holders can be attractive to say the least, but is it really that easy?
What many people don’t realise is that there are hidden traps and pitfalls to some of the 0% transfer offers. Read below to find out just a few tricks that some of the financial institutes play when offering you a seemingly great 0% balance transfer deal.
More Obvious Cost
There is at least one cost that can be plain to see, and that is the balance transfer fee. This fee could be a simple flat fee, or could be based on a percentage of the balance being transferred. You would be wise to take a look at both options, and see which works out the cheapest for you. If, for example, you are transferring a large balance, you may be better with a capped flat fee, rather than a percentage arrangement. Obviously, conversely if you are transferring a smaller amount, make sure you look into the percentage type deals fully.
Less Obvious Costs of Balance Transfers
One of the most common place techniques used to part balance transfer victims with their money is the way that repayments are tiered. For example;
Say you transfer £2000 onto a 0% on balance transfer card, great.
Next you make a purchase on this new card, let’s imagine for the sake of argument you spend £250. Now, lets also assume that the 0% on transfers offer is JUST on transfers, not on new purchases…
So, to avoid paying interest on the £250 you have spent, you pay it off before the month is over. Great… Right?
Well, possibly. Although with some repayment setups, you are bound to pay the cheapest debt off in full before you get to pay off any more costly debt. In the instance above, that would mean clearing the full £2000 of interest free debt, before being able to pay the £250.
What this means in practise, is anything you pay off (the £250, for example) will come off the £2000 that is on an interest free deal, rather than off the £250 you spent… meaning that you will be paying the standard rate of interest on purchases stated in the terms and conditions for that card.
Whilst this example may seem bad, if you didn’t know this rule it may be possible for you to run up a large debt that you will be paying interest on for a very long time, either until you clear the initial 0% transferred debt, or transfer the whole card balance to yet another 0% on transfers offer.
It is worth noting that not all lenders use this payment tearing system, so be sure to compare your options and fully understand the meaning of the terms before you sign up for a credit card. Especially be weary of offers in shopping malls, where you may not have time to fully go through and research the terms of a given offer.
The internet can be very useful for carrying out research into various credit card deals, both via Google, and also a trusted comparison website, such as Creditchoices. Comparison websites like this allow users to compare offers on all manner of things, from interest free credit cards to mortgages.
Fine final cautionary note, with some card providers terms, if you miss a monthly repayment, you may trigger an instant end to your 0% period. This is most definitely something else you should check for in the cards terms before applying.
Tags: 0 balance transfers, interest free credit cards