There has been a rapid growth in the availability of zero per cent rates in the credit card industry. These have been caused by the combination of very low national interest rates, and the injection of fierce competition from American lenders such as Capital One. The UK credit card industry is now recognised as one of the most sophisticated and competitive credit card markets in the world.
One of the most popular innovations in the past number of years has been the introduction of the zero per cent balance transfer. This has revolutionised the finances for many indebted customers. How it works is if you have very high interest charges on one of you’re out standing credit card balances, then you can transfer it to a new credit card. In exchange for getting your business in this way, the new credit card provider will give you a zero per cent interest rate on the sum transferred for a period of usually, six to nine months.
While taking advantage of these zero per cent offers is highly advisable, as it can save you literally hundreds on interest charges, there are still precautions that you should take if you wish to avoid some costly mistakes. The first thing to realise is that there are different types of zero percent. What you will most likely come into contact with is zero per cent on balance transfers or zero per cent on purchases. You must not confuse the two.
If you have zero per cent on balance transfers then that will not mean you have zero per cent on purchases, so any purchases you make during your zero per cent period will not be at zero per cent but at your standard rate. This can be very important if we look at the situation using an example.
Supposing you have five thousand pounds on a credit card a 15%. If you transfer this to a card that gives you 0% on balance transfers for nine months you will save hundreds on interest. However, supposing the new card has a standard rate of 15% also. Now, if you have your five thousand on it safely at 0%, but suppose you make one hundred pounds worth of purchases. And then you pay back one hundred pounds; the one hundred you pay back will be applied to the first one hundred of the five thousand-balance transfers. This will leave you with 4,900 left at zero per cent on the balance transfer, and 100 as a purchase that attracts the standard 15%.
In this way you can quickly see how a zero per cent balance transfer can become a 15% purchases balance.
Should you transfer your balances to a new credit card?
Using a balance transfer card for consolidating bad debt can be a smart move. However, you need to be very careful with the type of balance transfer card you choose. Bear in mind that the rate of interest isn't the only thing you should be concerned about. Aside from a low rate, you'll need a card with reasonable fees and charges.
As much as possible, you'll want to find a balance transfer card that carries no annual fees at all. To be able to make the right choice, compare one credit card from the other. Carefully review the Terms and Conditions page of each card that you're considering.
After choosing the right balance transfer credit card, does that mean you're work is done?
After transferring your credit card balances, the real work begins. In order to work, you need to be able to keep up with your monthly payments. If you're really serious about recovering from debt, you can't afford to be delayed with your payments.
Don't forget that the zero interest rate will not last for a long time. Some cards offer the 0% APR for just 3 months while other cards may offer a longer 0% APR period lasting up to 6 or 12 months. In any case, do your best to pay off all the balances you've transferred within the zero interest period.
Be careful with using your balance transfer card in new purchases. Take note that the zero interest rate may only be applicable for balances that have been transferred to the card. You could get charged with high interest for new purchases or new charges in your account.
Finally, controlling your personal spending is the biggest key towards debt recovery. Credit card consolidation would be a lot easier to manage if you are not burdened by unnecessary expenses.
Both Peter Kenny & Smith Andrea are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Peter Kenny has sinced written about articles on various topics from Credit Cards, Finances and Best Money Market. Peter Kenny is a writer for creditcards-gb For additional articles and an extensive resource for everything about credit cards, please visit us at