Should I Use a 0% Balance Transfer Card?
A 0% balance transfer can save hundreds in interest, or make things worse. It works if you clear the balance inside the window and stop using the old card.
In short
A 0% balance transfer card is worth it when the transfer fee, typically 2 to 4 percent, is less than the interest you would otherwise pay, and when you can clear the balance before the promotional period ends. It fails when the balance is not cleared and reverts to a high standard rate, or when the emptied card gets used again.
The offer sounds like free money and, used correctly, it is close to that. Used incorrectly it is a slightly more expensive version of the problem you already had, with a new card on top.
The arithmetic
Say you owe 3,000 on a card at 22 percent. Over a year, carrying that balance costs roughly 660 in interest. A balance transfer card charging a 3 percent fee costs 90 to move it, and then nothing for the promotional period, commonly 12 to 30 months.
That is a saving of several hundred pounds even before you start clearing the balance, and every payment you make goes entirely against the principal instead of mostly against interest.
The two conditions
You clear it inside the window. Divide the balance by the number of interest-free months. That is your minimum monthly payment, starting immediately. On 3,000 over 24 months it is 125. If that figure is not affordable, the transfer is postponing the problem rather than solving it, and the reversion rate at the end is often worse than the card you left.
You do not use the old card again. The emptied card still has its full limit. The most common failure is running it back up while paying down the transferred balance, ending up with both. Cut it up, freeze it in the app, or close it once the transfer completes.
The details that catch people
- The fee is added to the balance. A 3 percent fee on 3,000 means you now owe 3,090 at 0 percent.
- New purchases on the transfer card are usually not at 0 percent. They accrue interest immediately in most cases, and payments are often applied to the promotional balance first. Do not spend on it.
- Missing a payment can void the promotional rate. One late payment and the whole balance may revert to the standard rate. Set the direct debit before you do anything else.
- The promotional length you get may be shorter than advertised. Like APR, the headline term is what most successful applicants receive, not all of them.
When it is the wrong tool
If the balance keeps coming back, the card is not the problem and neither is the rate. That is a spending pattern, and a transfer just resets the counter.
If you cannot make the monthly figure that clears it inside the window, a personal loan at a fixed rate with a fixed end date may be cheaper overall, because it removes the cliff edge.
And if minimum payments across all your debts already strain the budget, free debt advice from a charity is worth more than any product. They can negotiate rates and freezes that no card offers.
Used well
Transfer, set a direct debit for balance divided by months, stop using the old card, and treat the promotional end date as a hard deadline. Done that way, a balance transfer is one of the few genuinely good deals in consumer credit.
Common questions
What happens when the 0% period ends?
Any remaining balance starts accruing interest at the card's standard rate, which is often higher than the card you left. Divide the balance by the number of promotional months and pay at least that every month from the first month.
Does a balance transfer hurt my credit score?
A new application causes a small temporary dip. Opening a new card also raises your total credit limit, which can improve your utilisation ratio. Over a few months the effect is usually neutral or mildly positive if you do not add new debt.
Can I transfer a balance to a card from the same bank?
Usually not. Most issuers do not allow transfers between their own cards, so you will typically need a card from a different provider.
Sources
Every factual claim above traces to one of these. Follow them rather than taking this article's word for it.
- Balance transfer credit cards StepChange Debt Charity
- Free debt advice StepChange Debt Charity
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