How to Use 0% Balance Transfer Credit Cards
A Guide to Reducing Debts by Switching Credit Card Deals to 0%
Sep 6, 2009
Despite their best intentions, many consumers find credit card debt hard to manage. Making regular repayments may make in a dent in their balance on paper but, once interest is added to the money they still owe, they may simply feel like they're getting nowhere fast. One option that may give an alternative solution is switching to a 0% balance transfer credit card deal. So, how do these deals work?
The 0% Balance Transfer Credit Card Deal
Credit card companies, like any other business, need to get new customers. One of the easiest ways for them to do so is to entice customers to take out an account with them by offering them a deal or a special offer. The most popular deal here probably is the 0% balance transfer.
This kind of deal sees a new customer open a new credit card account with the aim of transferring existing credit card debts on to their new cards. The incentive given is the 0% interest rate. For a period of time (i.e. for 3, 6 or even 12 months) the card company will charge no interest on the debts they bring over. This deal may also include a period of 0% interest on new purchases made on this card.
Why Take Out a 0% Deal?
Used correctly this kind of deal can help a consumer to reduce their debts. Any money that they make as repayments on their new card will go directly to repaying what they owe as with their old card. The difference here is that no new interest will be added. So, what they owe can be paid off more quickly.
For a period of time they will be getting what is almost an interest free loan. This can make it a lot easier to reduce debts quickly and more effectively. But, as with any financial product, there are issues to consider before opting for a 0% balance transfer deal.
Things to Consider Before Applying for a 0% Balance Transfer
Although this kind of deal can sound like a great solution it shouldn't be entered into without some thought. For example, people may want to consider the fact that:
- 0% balance transfer deals normally come with a fee attached (either a minimum charge or a percentage of the transfer) which is added as an administration fee. So, the debt will grow once more before they can start paying it off.
- Once a 0% deal is over the interest charges levied on the card may be a lot higher than the norm. Checking out online credit card rate comparison sites can help compare these rates.
- It can be hard to have the commitment to concentrate on repaying as much as possible during the 0% period once the stress of having interest added every month is taken away.
- Getting a card that also comes with 0% on purchases can encourage further spending rather than repayment. This could leave the consumer with a larger debt to repay once their deal is over than they started with.
- These deals are not as readily available as they were pre-recession. Assuming that a switch can be made to a new 0% deal with a different company once the first deal term is done may not always work out. These deals may also not be given out so readily to those with bad credit problems.
Taking all that into consideration, however, someone who is committed to spending a few months tightening their belt and paying as much as they can afford every month to reduce their credit card debts could see a lot of benefits to making a switch.
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