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Balance Transfer Disasters
By: Peter Kenny
There has been a rapid growth in the availability of zero per cent rates in the
credit card industry. These have been caused by the combination of very low
national interest rates, and the injection of fierce competition from American
lenders such as Capital One. The UK credit card industry is now recognised as
one of the most sophisticated and competitive credit card markets in the world.
One of the most popular innovations in the past number of years has been the
introduction of the zero per cent balance transfer. This has revolutionised the
finances for many indebted customers. How it works is if you have very high
interest charges on one of you’re out standing credit card balances, then you
can transfer it to a new credit card. In exchange for getting your business in
this way, the new credit card provider will give you a zero per cent interest
rate on the sum transferred for a period of usually, six to nine months.
While taking advantage of these zero per cent offers is highly advisable, as it
can save you literally hundreds on interest charges, there are still precautions
that you should take if you wish to avoid some costly mistakes. The first thing
to realise is that there are different types of zero percent. What you will most
likely come into contact with is zero per cent on balance transfers or zero per
cent on purchases. You must not confuse the two.
If you have zero per cent on balance transfers then that will not mean you have
zero per cent on purchases, so any purchases you make during your zero per cent
period will not be at zero per cent but at your standard rate. This can be very
important if we look at the situation using an example.
Supposing you have five thousand pounds on a credit card a 15%. If you transfer
this to a card that gives you 0% on balance transfers for nine months you will
save hundreds on interest. However, supposing the new card has a standard rate
of 15% also. Now, if you have your five thousand on it safely at 0%, but suppose
you make one hundred pounds worth of purchases. And then you pay back one
hundred pounds; the one hundred you pay back will be applied to the first one
hundred of the five thousand-balance transfers. This will leave you with 4,900
left at zero per cent on the balance transfer, and 100 as a purchase that
attracts the standard 15%.
In this way you can quickly see how a zero per cent balance transfer can become
a 15% purchases balance.
About the Author:
Peter Kenny is a writer for creditcards-gb For additional articles and an
extensive resource for everything about credit cards, please visit us at
http://www.creditcards-gb.co.uk and
http://www.creditcards2go4.com
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