0% Balance Transfers - What's The Buzz?

Balance transfers can be a good way of managing large sums of debt. The idea is simple. You have a large debt, loan, store card balance or credit card balance on which you are paying a high rate of interest. The interest is so high that most of your repayments are paying off the interest rather than the principal. This is clearly not the best way to manage your money.

Enter the 0% balance transfer deal. This was first introduced by Egg a few years ago and since then many other credit card issuers have followed suit. The idea is simple. Credit card issuers offer new card holders the chance to transfer their existing debt to a new credit card at an interest rate of 0%. This means that people are able to apply their repayments to reducing the principal, thus reducing their debt over time.

Finding The Right Balance Transfer Deal

Most 0% balance transfer deals last for a limited period. This can be anywhere from three to 12 months, depending on the card issuer. Most major card issuers have 0% balance transfer deals on at least one of their card products. These include the charity badged credit cards.

Some people manage their money by moving it from credit card to credit card as the preferential rates expire. This is known as rate surfing and the people who do it are called credit card tarts. The key to using this strategy successfully is to apply for a credit card at least six weeks before the current preferential offer is due to expire. Credit card users should transfer the outstanding balance as soon as possible after receiving the card, so that they avoid paying any interest.

Balance Transfer Fees

Of course, credit card companies hope that credit card users will leave the balance on the card. Interest rates can go up sharply after the honeymoon period. Interest rates on many cards hover around the 16% range, but some interest rates are much, much higher.

Since credit card tarts cost credit card companies hundreds of thousands of pounds in lost interest, they are now using strategies to make the practice less attractive. This includes charging a balance transfer fee of around 2% of the balance transferred. In some cases, there is no cap on the balance transfer fee, so credit card holders could have to make large up front payments to credit card issuers. The good news is that there are still some cards which do not charge a balance transfer fee, so it is worth shopping around for one of these.

People who use their credit cards for spending might also be interested in credit cards that offer 0% on purchases. Again, this is for a limited period, but it can be worth having if people want to avoid paying interest. Many credit card companies also offer other incentives, such as cash back rewards, points, vouchers, reductions on travel insurance and much more.

Other Options For Debt Management

Balance transfer deals at 0% interest may not be right for everyone. Moving balances from card to card means being organised and keeping track of dates and amounts, especially with multiple credit cards. People who feel this is not a good strategy can manage their debt in other ways. For example, they can opt for a credit card with a long term low interest rate.

Whichever deal people go for, it is essential to make at least the minimum repayments and to make them on time. This will maintain a good credit record and will make it easier to get other credit cards if these are needed.

More Information:

• Quick Balance Transfer Guide
  Balance transfers allow card holders to transfer the money they owe to their existing credit card to another, usually at a special rate of interest. The new credit card company pays off the old credit card debt and transfers it to the new card. This article will tell you how to play the game.
• The True Cost of Balance Transfers
  Balance transfers are a great way to consolidate credit card debts into one place, especially when there are many 0% deals available. However, there are hidden costs.
• Successful Stoozing: A Guide
  The introduction of 0% balance transfer deals brought a new financial practice which allowed people to use those deals to make money. The practice is known as 'stoozing' and it is closely related to credit card jumping. The difference is that successful stoozers have to be debt free, otherwise any gains made by stoozing will be lost in paying interest on credit cards.
• How Do I Know Which Credit Card Is Best For Me?
  With so many credit card issuers now offering you the chance to become a member of their system, how can you tell which credit card issuer you should apply for, i.e. how do you know which credit card is best for your needs?