0% balance transfer credit cards explained

The pros and cons.

Balance transfer credit cards can be a useful way to help clear debts. But there are dangers with using one if you don’t follow the rules.

This Be Clever Basics guide is going to explain how 0% balance transfer cards work so you can find out if one is right for you.

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What is a 0% balance transfer credit card?

Got credit card debts? Chances are you’re paying close to 20% in interest on the money you’ve borrowed, if not more. This adds up quickly, making your spending more expensive. And if you’re spending on credit cards in the first place it’s probably because you can’t afford what you’re buying – so extra charges aren’t welcome!

But if you get a 0% balance transfer card, you can move the debt from other credit cards to it, and crucially not have to pay interest for an agreed time. At the moment this can be as long as 30 months – that’s two and a half years.

The idea is that you use this time to clear the debt without adding to it, saving you money in the long run. If you’ve other debts, it might also give you a little breather while you clear those.

How much money you could save

Obviously it depends on how much you owe right now, the interest you’re being charged, and the card you get.

But let’s take a few examples. These are with set repayments each month. If the interst rate is higher or if you’re just paying the minimum your savings would be much larger!

Debt = £2,500

If you have £2,500 at 18.9%, and you’re paying a fixed £100 back each month, it’d take you 32 months to clear the debt and cost you £631 in interest.

But switch the debt to a 0% card with at least 26 months and continue paying £100 a month you’d pay zero interest!

Yes, you need to factor in the transfer fee – if it was 3% it’d be £75 – but you’d still be £556 better off!

Debt = £1,000

If you owe less, say one grand at a similar interest rate but a £50 set repayment each month, you’d take two years to clear the debt and pay £190 in interest.

But putting it on a 0% card for at least 21 months would reduce that interest payment to nothing. You’d just need to cover a transfer fee, which assuming 3% would be £30. That’s a total saving of £160.

What to watch out for with 0% balance transfer cards

The 0% time will end

Once the 0% offer period ends, the interest rate goes up to a normal – if not higher than normal – one. So the idea is to use that 0% time to clear the debt.

There’s often a fee

As mentioned, you will usually have to pay a fee on the total balance you move over. So a 3% fee on a £3,000 balance transfer would be £90.

Though there are cards with shorter 0% lengths which don’t charge and these can be better options if you are confident you need less time to clear the debt.

You usually have to make the transfer early

Once you’ve got the new card, most transfers need to be made within the first two or three months in order to get the 0% rate. Leave it too late and you’ll get a much higher rate, defeating the purpose of the switch.

You still need to make a monthly payment

If you don’t make the minimum repayment each month, the special 0% deal could be ended early, meaning you’ll start paying high rates of interest again. Set up a Direct Debit to make sure you don’t forget.

You might not get the advertised deal

Credit card companies want to make money from you, but they also want to be sure they won’t lose money on you. If you do get accepted, you might not get the full deal. You could be offered a shorter 0% deal, the rate of interest after the 0% could be higher. 

Applying can be bad for your credit score

And of course there’s the risk you could also be rejected outright. If you do get rejected it’s not just bad for your debt, it’s bad for your credit rating too.

To help the card company make that decision, they’ll run a credit check. To get an idea of whether you’ll be accepted, try a soft check on a comparison site. It’ll look at your credit report but not leave a trace.

You might not be able to transfer your entire credit card debt

Let’s say you’re successful and get the 0% balance transfer card. Great. But there’s no guarantee that the credit limit (i.e. the amount you can have on the card) will be the same or more than your current debt. 

Additional spending will not be 0%

Unless you have a card which specifically has a 0% purchase offer in addition to the 0% balance transfer you will get charged interest on any additional spending.

They aren’t the answer if you don’t think you can clear the debt over time

If your only debt is the card debt, balance transfer cards are a big help. But if your wider finances are in a bad shape and you don’t think even a year or more on a 0% card will help you clear your debts, then you’re just delaying a bigger problem. Really you need to get some free debt advice. Read more about what you can do if your debts are getting too big

How to make a 0% balance transfer card work for you

Plan for how to pay off the debt

Say you’ve got a £1,000 debt and you transfer it to a 25 month 0% deal, you should try to evenly pay it off each month. That would be £40 every month.

Or even better, pay as much as you can afford each month to clear it sooner. Even though you’re not paying interest on the debt during the 0% period, you don’t know if something could happen later that stops you from paying your planned amount.

Decide if a longer deal or lower fee is better

Don’t go for a long balance transfer deal if you don’t need it. Instead you might be better off picking one with a low fee – or even one that is fee-free.

Of course the lower the fee, the shorter the deal, so the best bet for you really depends on your circumstances. If you need a long time to pay off the debt, a longer deal could suit you, even if the transfer fee is higher.

Shop around

I’m often getting junk mail through the post from my existing banks offering a balance transfer deal. These might be decent, but don’t just jump at the first one you see. Shop around and see what the best offer is out there.

Try not to keep moving the debt

Some people transfer the debt to a new 0% card each time the deal ends. And again. And again.

It’s potentially risky as you might get rejected for a new card. Plus since you generally have to pay a fee each time you transfer, it could cost too.

If you think you won’t be able to clear the debt, consider a longer 0% period for the card.

Don’t spend on your balance transfer card

New spending doesn’t just add to the previously transferred balance. It’s a new debt so interest won’t be 0%. So to avoid this look for a better spending card. If it has to be a credit card, then you can get a 0% purchase credit card which does the same thing but for new spending, or an all-rounder which has 0% on transfers and purchases.

If you do spend on a balance transfer card, try to clear that full amount at the next billing date. The most expensive debt is cleared first, so any monthly payments you make will go to clearing this new spend first. But if you don’t pay off enough to cover the new spending, you’ll get charged interest on it.