Sara Williams blogs about debt and credit ratings at her Debt Camel website, covering a huge range of topics from choosing between an IVA or bankruptcy to what you need to know about 95% mortgages. Here she is answering some questions about 0% balance transfer credit cards.
If you want to pay less interest look for a 0% balance transfer credit card. But you will need a good credit score to get a good offer!
Here are some of the questions I have been asked about these transfers.
I haven’t done a balance transfer, can you explain how they work
Let’s say you have a Capital One card with a balance of £2,000 at a high rate of interest. And you have just been accepted for a 0% balance transfer card with Barclaycard with a limit of £3,000.
To make “the transfer” you phone up Barclaycard (or log in to your Barclaycard account online) and say where you want to move £2,000 from your Capital One card. So you don’t have to contact Capital One at all to make the transfer – and they can’t say No!
Barclaycard then pays £2,000 into your Capital One account, so it is sitting at zero. And your Barclaycard account now shows you have borrowed £2,000 from them.
You still have £1,000 of limit on the new 0% card, so if you have another credit card balance you could move up to £1,000 of that as well.
Things to watch out for:
- there is often a time limit for transfers eg they have to be made within 30 days to get the 0% rate. Make sure you know what this is.
- you normally can’t transfer from another card from the same lender.
Should I close down the old card?
The safest thing is to close down the old card. If you keep that Capital One card in the above example open, you may always be tempted to use it and soon you can have two big credit card balances not one.
But this is actually a complicated topic, so read Credit cards – to close or not? That looks at the five reasons to close a card and five reasons not to, and see what matters most for you.
I don’t have to pay anything until it ends?
No! You still have to pay at least the minimum monthly payment on a balance transfer card. You aren’t being charged any interest so all your money will cut the balance, but you can’t pay nothing.
Can I pay off my partner’s credit card?
Sometimes, this depends on the card. If this is important for you, ask the card you are thinking of applying to whether they allow it.
Remember if you do transfer your partner’s balance it then legally becomes your debt.
Can I pay off my overdraft with a balance transfer?
If you want to do this then you need to look for a money transfer card, not a normal 0% balance transfer offer. MoneySavingExpert has a good guide to them here.
Some cards allow you to do money transfers and balance transfers but charge different fees for these – a good card for one may be expensive for another so be clear what you want before you apply for a card.
How do the banks make money from these?
Good question! It’s right to be suspicious of what looks like a bargain from a bank.
Banks make money from these cards when you slip up. Doing any of the following can be expensive for you and very profitable for the bank:
- spending on your new card or taking out cash on the card – this is not at 0% interest. The safe thing to do is never to spend on this new card, just cut it up.
- missing a monthly payment – the 0% offer then ends. If you have just missed a payment by a day or so, call up the card immediately, make the payment, sound very sorry and beg nicely – often the card company will let you off if this is the first time you have done this.
- still having a balance at the end of the 0% period. You need to pay off the card by the end (best!) or do another balance transfer in the last month so that you never pay any interest.
Will I be able to get another balance transfer at the end?
If your credit record remains good and you haven’t borrowed too much money for your income, you will be in a good position to be accepted again.
But will there be any good offers in two or three years? That mostly depends on interest rates. If rates go up, it’s more expensive for a credit card company to offer you 0%.
Since May 2017 the best buys for balance transfers have been getting a bit worse every month – shorter transfer periods or higher fees or both. If this continues, then in another couple of years you may not be able to get nearly such a good offer as you can now.
To be safe, it’s best to pay down the 0% credit card as much as you can. It may feel like cheap money now, but it could suddenly get very expensive at the end if you can’t transfer again.