You might think it’s odd to use a new credit card to tackle existing credit card debt. But here’s how a special type of card, known as a 0% balance transfer card, can help:
What is a 0% Balance Transfer Card?
Imagine you have a debt that grows bigger every day because of interest. Now, imagine freezing that growth for a certain time – no extra costs! This is essentially what a 0% balance transfer card does. It lets you move your debt to a new card and pauses interest for a set time (like two years). During this time, you only pay off what you owe without extra charges piling up.
The Benefits:
- No Interest Growth: Your debt doesn’t get bigger because of interest.
- Affordable Repayments: Without interest, your monthly payments are lower.
What to Watch Out For:
- Transfer Fees: Moving your debt to the new card isn’t always free. You might have to pay a small percentage of the moved amount, say 3%. On a £1,000 debt, that’s a £30 charge. Some cards might offer this for free, so always check.
- Post-0% Interest Rates: Once your interest-free period ends, standard interest rates apply. It’s like the pause button being lifted off.
A Few Examples:
- Barclaycard’s Platinum 30-Month Card: Lets you freeze interest for up to 30 months. To move debt, you pay 3.45% of the amount. So, transferring £1,000 would cost £34.50. After the pause, the interest rate is 24.9%.
- M&S Credit Card: A 28-month no-interest period, with a 2.99% transfer fee. So, for £1,000, that’s £29. Post-pause interest rate is 23.9%.
Will I Always Get The Advertised Deal?
Not always. The card deal you get could be based on your credit history. Think of this as your financial behaviour report card. A good score might get you the best deals. If unsure, use an eligibility calculator to see your chances without affecting your score.
What If I Have a Low Credit Rating?
Some might not qualify for these cards due to a lower credit rating. If this is you:
- Soft Search: Before applying, do a ‘soft search’ to check your chances without hurting your score.
- Improve Your Score: There are methods to boost your credit score.
- Alternative Cards: Look for cards designed for those with a low credit score.
Other Ways to Tackle Debt:
If you need more time to repay, a personal loan might be an option. You borrow a lump sum to clear card debt. But remember, this isn’t interest-free and can get you deeper into debt if not managed well.
Important Reminder:
If you get a 0% card, always make at least the minimum monthly payment. Missing this could mean losing the 0% deal. It’s like a contract – stick to the terms, and you’ll reap the benefits!
In essence, a 0% balance transfer card can be a useful tool to manage and reduce your credit card debt, but it’s essential to understand the terms and conditions and to ensure you can meet the repayment requirements. If in doubt, always seek professional advice or consider alternative options to manage your debt.