Using 0% Balance Transfers to Pay Off Other Debt
How to Use 0% Balance Transfer Cards to Repay Overdrafts and Loans
Sep 10, 2009
In recent years using balance transfer deals has made it easier for some consumers to make in-roads into paying off their credit card debts. The 0% deal is probably the most popular choice. This allows a consumer to switch to a new provider who won't charge interest on what they owe for a set period allowing them some breathing space to try and reduce their debt balance.
These deals are meant to help with credit card debts but some card providers such as MBNA offer 0% balance transfer deals that can include a cash option. This could, technically, allow a consumer to use their transfer cash to repay other debts such as loans and overdrafts.
How the 0% Balance Transfer Cash Deal Works
This deal works in much the same way as a standard card transfer option. Instead of using the deal to repay what they owe on credit cards, however, the consumer asks their new card provider to give the balance transfer as a cash sum which is deposited into their account. This cash transfer will be given at a zero percent interest rate for a set period of time.
The consumer can then use this cash to repay other loans and overdrafts which can help ease the pressure in some cases. They won't be charged interest on the money that they are borrowing here while their deal lasts. If, therefore, they pay the money back to the card company before their deal runs out then they won't have any interest charges to deal with.
As with most balance transfer deals they will, however, have to pay an administration fee to make the transfer in the first place. This is usually charged as a percentage of the cash transfer sum or as a set minimum amount. The costs of this kind of cash transfer will usually be set at a higher percentage than those given for standard balance transfers.
Considerations to Make Before Applying for a 0% Balance Transfer Cash Deal
Like any kind of credit card deal this option can look good on paper. Its success or failure depends, however, on how it is used. Used correctly, it can see a consumer pay off an existing loan or overdraft at a low cost. Used incorrectly, however, it can lead to an increase in debt if they don't manage to repay what they borrow before their deal is finished. So, before applying for this kind of deal consumers may be wise to consider the following factors:
- Will the deal last long enough for them to repay what they borrow comfortably?
- Can they actually afford to repay what they borrow before the deal ends?
- What are the adminstration costs involved in setting up this kind of balance transfer?
- Is there a timescale in which the application for a cash transfer has to be made when taking out a new card?
- What are the default interest rates that will be charged for the card once their deal is done?
This can be a workable solution for some consumers. Taking the time to look at credit card rate/deal comparison sites can also help to source the best deal.
In some cases, however, a more holistic debt management solution or a straight balance transfer deal may be a better option.
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