Credit cards with 0% balance transfers could cost more than you think!

These days there are numerous credit cards in the market with 0% balance transfers for up 12 months or more. This interest free borrowing period is an obvious incentive to encourage new customers to sign up.

The interest free balance transfer option has its merits as you get to enjoy an interest free credit period within which you can pay off the balance or take a credit card repayment holiday. As the saying goes “nothing in life is free”, there is a catch and most potential credit cardholders tend to over look this in the haste to sign up.

Balance shifting fees: fees of up to 3% may be charged by some credit card companies which is mostly listed in the small print and not clearly advertised.

Ratchet APR%s: be mindful as credit card companies may offer an increased interest free period at a later stage with an increased (higher than normal APR%) on purchase transactions and cash advances.

The biggest catch: apart from rates the real benefit of moving credit balances is the interest free period as it can help you pocket a decent amount of savings. But credit card companies also know that and the biggest catch is that you can only remain at the 0% APR rate on the old balance which you transferred, regardless of how much you have reduced that balance by. To illustrate, say you transferred a balance of £3,000 from your old Halifax card to a new HSBC credit card which gives you a 6 months 0% APR on transfer. During the first two months you manage to repay £2,000 of that old transferred debt and to celebrate, you decide to go shopping and put on another £1,000 on the new card. Now, one would think that the deal was £3,000 with 0% APR for 6 months but no, the new purchase of £1,000 would be charged at the credit card’s normal APR% while the old balance remains at the 0% rate. The tip here is to never use your balance transfer card to make purchases as you will lose the main advantage of taking the 0% interest period in the first place. Always check the fine print before applying and try searching the web to get behind the deals.