Interest Free Credit Card Deals Can Cost You More
March 2005
What seems like a good idea at the time can often cost you more money. We're talking about credit card deals that offer 0% interest on balance transfers.
Millions fail to pay debt before 0 per cent offer ends. The credit card company Capital One has released information stating that fewer than 61% of the 4 million people who transfer their debt manage to clear it before the offer ends. This is not a problem in itself but when the introductory offer ends they often end up paying interest at a very high rate.
13% of people who transfer their balance also forget to do anything when the interest free period expires.
Some now argue that the days of 0% balance transfer are coming to an end. Although what seems like free money to many could still be a good profit making venture for the credit card companies as the figures above suggest that over 50% will be paying interest on their debts at some stage in the future.
How Much Can You Save by Transferring?
- If somebody has a £2,500 debt on a NatWest credit card charging 18.4 per cent
- Repaying just the minimum each month could save up to £358 in the first 12 months by transferring their balance to the Halifax One Visa
- The Halifax card offers 0 per cent for nine months and 9.9 per cent thereafter
- Also look at HSBC's Gold Visa card and Virgin Money's MasterCard who offer 0 per cent on balance transfers for nine months with no fee
Are Costs Involved with Transferring Balances?
Some credit card companies are now charging a capped flat rate fee. Barclaycard offers 0% on balance transfers until September this year but charges a 2 per cent fee on the amount transferred to a maximum of £35. MBNA and Mint also charge, 2% up to a max of £40.
Interest Rates Are Rising
Credit card companies are also starting to increase their lending rates in line with Bank of England base rate moves.
- The Nationwide card for example has just raised its rate from 13.9% to 14.9%
- Look for the other companies to follow suit
Important Advice
One area within the balance transfer world that many people don't realise is this. Say you transfer £2,000 from a card to one that offers a 0% rate for 9 months. You then make another purchase of £500 on that card. Interest is now charged on the £500 but for many cards you can't pay this off until the initial £2,000 balance transfer is gone. Therefore you can actually end up paying far more than you first realised in interest payments.
So the rule of thumb must be that is you transfer a balance in order to take advantage of the free interest rate NEVER SPEND ON THAT CARD UNTIL YOU'VE PAID THE BALANCE OFF IN FULL.
If you want to make further purchases then do so on a different card.
Credit Cards That Offer Free Balance Transfers
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