In the credit card business, the number of cards with 0% interest rates has grown quickly. These have happened because national interest rates are very low and there is a lot of competition from American lenders like Capital One. People now agree that the UK credit card market is one of the most sophisticated and competitive in the world.
The zero percent balance transfer has been one of the most popular new ideas in the past few years. This has changed the way many people with debt deal with their money. It works like this: if you have a credit card balance with a very high interest rate, you can move it to a new credit card. In exchange for your business, the new credit card company will usually give you a 0% interest rate on the amount you transfer for a period of six to nine months.
Even though taking advantage of these 0% offers is a good idea because it can save you hundreds of dollars in interest charges, you should still be careful if you want to avoid making some mistakes that will cost you. First, you need to realise that there are different kinds of "0%." Most likely, you'll see 0% on balance transfers or purchases. You can't mix up the two.
If you have 0% on balance transfers, that doesn't mean you have 0% on purchases, so any purchases you make during your 0% period won't be at 0%, but at your standard rate. If we look at an example, we can see how this can be very important.
Let's say you have $5,000 on a credit card with a 15% interest rate. If you move this to a card that doesn't charge interest on balance transfers for nine months, you'll save hundreds on interest. But let's say that the standard rate on the new card is also 15%. Now, let's say you have your $5,000 on that card and it's safe at 0 percent, but you spend £100 on things. Then you pay back 100 pounds. The 100 pounds you pay back will be used to pay off the first 100 of the 5,000 balance transfers. This will leave you with a balance of $4,900 that has 0% interest and a purchase of $100 that has the standard 15% interest rate.
In this way, it's easy to see how a balance transfer that costs nothing can quickly turn into a balance that costs 15%.
