Last year I became debt free, which was one of the greatest accomplishments of my life. Making extra money was a large part of that, but another thing that drastically helped me to achieve my debt free status was 0% balance transfers on my credit card debt.
What is a 0% balance transfer credit card
Often your existing credit cards may have a high APR attached to them. APR, or annual percentage rate, is the annual rate that you are charged for borrowing money. A 0% balance transfer is where all, or part, of the outstanding debt on a credit card is moved to another credit card with 0% interest.
Advantages of a 0% balance transfer credit card
There are many advantages to having a 0% balance transfer credit card. The most advantageous are:
- Saving you money on interest charges. For example, if you have £5,000 outstanding on a credit card at 18.9% interest, and you are paying £200 a month, taking out a 12 month 0% balance transfer will save you £597, even taking into account the balance transfer fee. If you manage to get an even longer 0% promotional period then the savings are even bigger.
- Organise your debt – if your debt is over a few credit cards, by transferring to just one credit card you can manage your payments better.
- Your debt is paid off sooner – by saving money on interest, you are able to pay off your balance faster.
Things to look out for:
- Balance transfer fee – this is a fee is anything between 0.35% and 5% of your total balance. This means that transferring a £5,000 balance could cost you as much as £250.
- Promotional periods – how long will you get the 0% balance transfer offer for? The longer, the better. If the offer is only 6 months, calculate how much interest you will save versus the balance transfer fee.
- Interest rates after the promotional period – if you are hoping to clear all of your balance before the promotional period is over, then this isn’t too much of an issue. But if you are still going to be carrying a balance once the 0% period is over, you will need to factor in these rate rises. You could, of course, try to get another 0% balance transfer deal at this time.
- Keep up with minimum repayments – the terms and conditions will state that if you are late making a single payment then you will forfeit the 0% promotion. To ensure this doesn’t happen, set up a Direct Debit to pay the minimum payment every month.
- Annual fee – some credit cards charge an annual fee, which you will need to factor in to your calculations.
- Credit limit – new lenders will set a credit limit after approving your application. Typically, you can balance transfer up to 95% of your new credit card limit.
Where to find 0% balance transfer offers
Finding an offer can be challenging, as there are so many credit cards out there. The EverMoney credit card comparison tool allow you to compare credit cards from both major providers and smaller providers. You can see, at a glance, the main features of each credit card and as well as the main terms, such as interest free period and transfer fees.
You can also filter your results to make them more relevant to your financial needs, whether it be credit cards for bad credit, the best balance transfer credit card or interest free credit cards.
Applying for a new credit card
When applying for new credit cards, it is important to ensure that your credit rating is in good shape. This helps to ensure that your application is approved so you can carry out a 0% balance transfer and start saving money. There are some simple things you can do to help your application be successful. You should do these approximately a month before applying for a new credit card.
- Ensure that you are on the electoral roll at your current address.
- Ask your lenders to close any credit agreements that are have paid off and no longer in use.
- Keep up with your existing payments, and make sure they are on time.
- Don’t apply for any other credit in the mean time.
- Check your credit report to ensure there are no errors.
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