The balance transfer has expanded at an incredible rate for credit card companies. Despite many credit card companies suffering due to an increase in levels of bad debt, we still see a lot of competitive deals entering the market. It’s not common to see a lot of offerings like a 0% for 12 months on balanace transfers.
The idea of switching to a 0% credit card is so that you can pay off as much as you can every month. Every penny you fork over during the interest-free period will go towards paying off your debt. However, keep an eye out for cards charging balance transfer fees. Many now charge a fee usually ranging between 2 and 3 percent of the balance. So for those who are transferring larger balances, this would make it a bit unattractive.
Be careful when buying anything else on the new credit card during the interest-free period. The catch? Most credit card providers will pay the cheapest debt first when allocating your monthly repayments. So if you have 0% balance transfer deals and purchases on the same card, when making a repayment it will firstly repay the money owed on transferred balances, thus ensuring they’re the last debts to be paid. It means your purchase debt keeps growing at a high interest rate until your balance transfer is paid off, which rather defeats the object of switching!
The bottom line is that if you’re planning to use the card for purchases too, standard rates will apply and will vary considerably. In most cases you are unlikely to find a card which will offer best rates on balance transfers and purchases. Your best bet is to avoid any purchases on the card with the balance transfer deal and make purchases on a separate credit card.
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