Now, in the good old days when the credit card companies fought for our business, one of the ways to entice us to use a particular brand of credit card was to promote 0% balance transfers credit card. Lenders offered longer interest free periods on their balance transfers and additional extras such as 0% on new purchases.
0% balance transfers were soon discovered by credit card owners (known in the trade as ‘rate tarts’), who moved their balance at the end of the interest free period from their existing lender to another lender who offered 0% balance on transferred balances, and so on and so on. To counter this, the majority of credit card lenders who offered 0% balance transfers, introduced transfer fees, which range between a set amount to a percentage levied against the transferred balance.
0% balance transfer credit cards can be a major help when dealing with credit card debt. They allow you to transfer your existing credit card debt to another card where, for a set period, you’ll not have to pay any interest, so providing you pay off your outstanding balance within the interest free period, you don’t spend any money on interest fees, which seems like a good deal to me.

What are the problems?

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Make very sure that what you consider a new purchase is also considered a new purchase by the credit card provider, as failure to do so could end up with you paying the normal interest rate charged by the credit card provider, rather than the interest free rate that you where banking on. Such things as cash withdrawals, online gambling and gift vouchers are not looked upon by credit card providers as ‘new purchases’.

Watch out for offers that include both 0% balance transfers and interest free credit on new purchases as you very rarely end up with purchases that are really interest free.

Credit card lenders tier your repayments, this means that the “cheapest” part of your debt is paid off first, and those purchases carrying the highest rates of interest will be paid off last. For example, let’s say you transfer your existing balance of 2000.00 GBP to a credit card offering zero interest transfer balance along with three months of interest free new purchases. Off you go, spending away on new purchases, happy in the knowledge that your purchases are interest free. Wake up!, what happens is that all your repayments first towards paying off your 2000.00 GBP outstanding balance, consequently when the interest free offer ends on new purchases, unless you have managed to pay off your balance, you will end up paying around 17% interest on the purchases your thought were interest free.

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