Although the 0% balance transfers on offer are less good at the end of 2018 than they were a year ago, there are still some great deals to be had. So good that you may be wondering what the catch is!
Banks do expect to make money from these “bargain offers”. If you know how, you can plan to avoid this and make sure you are the one that gets the bargain, not the credit card company.
How do banks make profits from these bargain offers?
Banks make money in four ways:
- up-front fees the fees on the top deals great value, but if your credit record isn’t perfect, you are going to be paying a higher fee;
- borrowers losing 0% deal if you are late paying or go over your credit limit, the 0% deal will be ended and you are back to high-interest rates; 3 million people have had this happen, losing the 0% deal often in the first few months.
- borrowers using card for new purchases The card companies get a small transaction fee from the seller every time a card is used to buy something. And the borrower has to pay interest on new purchases. See this news story where someone didn’t understand this,
- high interest charges after the end of 0% period RBS, who stopped offering 0% transfers a few years ago, said that over a third of their borrowers kept balances on the card for more than seven months after the 0% period ended.
So get organised!
None of these problems should stop you from taking out a 0% credit card if your credit rating is good enough to get one. You just have to be organised so that you take advantage of the deal and the lender doesn’t take advantage of you.
First, don’t rely on your memory to make those minimum monthly payments. You may think you are not going to forget, but a busy period at work, a nasty dose of flu or a family crisis can spoil your good intentions. By missing a payment or making it late, you won’t just lose this 0% offer, you are likely to get a black mark on your credit rating which will make it hard to get another one.
The best thing you can do is divide the debt by the number of months in the offer and set up a standing order for that amount. That means at the end of the deal you are debt free, so say thanks to Mr CardCo for the really cheap loan for 3 years!
If you don’t think you can afford this every month, then set up a direct debit so that the credit card company always takes the minimum amount each month. Then overpay this whenever you are able.
Second, it’s vital that you don’t forget when the 0% period finishes. If you have a diary, make an entry one or two months before the deal ends to remind you to start looking for a new one. Or sign up to MoneySavingExpert’s Tart Alert, which will email or text you when there is six weeks to go.
Third, don’t be tempted into spending on your balance transfer card – leave it at home or, even better, cut it up!
The aim is to clear your debt – not keep rearranging it
The best use of 0% balance transfer credit cards is to let you pay off the debt in the cheapest way, not keep on shuffling it at the end. This is a golden time for borrowers with good credit ratings, so take advantage of it to clear your debts.
This may not seem important now, with interest rates being low, but this is the only time it is easy for you… in a few years time when rates have gone up, much of your monthly payment will be swallowed up by interest charges.
This is especially important if you may want to get a mortgage or remortgage in the next few years. Even if you think your debt is easily manageable because it’s at 0%, you may fail a mortgage lender’s affordability checks, see Can I get a mortgage with debts?