0% balance transfer charge card accounts must be amongst the best known and least understood of financial products.
They’re renowned as the short-term borrowing ‘good guys’ but – used incorrectly – they can be as dangerous to your wealth as any high-interest plastic used for purchases.
This is a real shame since, in comparison with some other forms of plastic, cards that allow users to make to transfer cash without interest are fairly simple.
In fact, there are only three major pitfalls to transferring a high-interest credit card account balance over to a balance transfer card (this article won’t go into some of the other ways of using 0% balance transfer credit card accounts, such as stoozing).
These three pitfalls can be summarised as FOP: fees; 0% offer length and purchases.
The first pitfall is the fee that a credit cardholder is required to pay when they take out a 0% rate on a card used for balance transfers.
This fee is usually a percentage amount of around 2-3% of the transferred balance which is then added onto the balance.
The first pitfall, then, is to remember this fee and take it into account when working out how much you need to pay back every month to pay everything back within the 0% period.
The second pitfall is knowing how long the 0% rate on the card’s offer lasts for.
This will be advertised heavily when you compare the different forms of borrowing available but offers often change very quickly so it’s always worth checking the terms and conditions when you receive your plastic in the post.
When a 0% interest offer ends the will return to the higher annual percentage rate, usually of around 20-30% APR.
So to avoid interest payments charge card accountholders will need to either move the balance again to another form of credit with the same zero-rate on transfers or pay the high-interest payments which will seriously deplete the savings they’ve can make in the long run.
Finally, there is the pitfall of purchases when you use a 0% balance transfer plastic.
This is a problem because purchases attract a much higher interest rate than the offer of rate of zero percent but often cannot be paid off until the balance transfer has been paid off in full.
This is particularly problematic when a form of borrowing with a special offer on balances that have been moved to save on interest also has a 0% purchases rate.
Rarely, a product such as the Virgin cash charge card will solve this problem by having a different allocation of payments clause. A short 0% purchases offer which can be paid back before the balance transfer period is less problematic than most zero percent offers on these cards.
However, these charge card accounts are rare and consumers are advised to check their terms and conditions carefully and – if concerned – not to spend using plastic which they are using to clear other card debts at all.
Finally, when looking for the best charge card for balance transfers, use a reputable credit card comparison website like www.1-2-3-CreditCards.com and I advise starting with Discover credit cards or Chase