In this week's millennial money episode, Damien and I discuss how to clear credit card debt using a 0% balance transfer credit card.
What is a credit card balance transfer?
A credit card balance transfer is when you pay off your existing credit card debt by transferring the balance onto a new credit card. Most people choose to do a balance transfer in order to reduce the amount of interest they are paying by transferring the balance to a 0% balance transfer credit card. Once you transfer to a 0% balance transfer credit card your monthly repayments are used solely to reduce the balance and you'll not pay any interest for the remaining term of the credit card.
There are various types of balance transfer credit cards to choose from. The rates and term length you get depend on your credit score. It is best to look for a card with 0% interest with the longest term length.
Credit cards that offer balance transfers generally come with a transfer fee, usually sitting at around 3% of the balance being transferred. When I did my balance transfer, my fee was 3% of the balance transferred and it was added to the total amount that I transferred. Most balance transfer credit cards stipulate that transfers need to be completed within 60-90 days.
For more information on credit card balance transfers and the best cards available on the market right now, read our article 'The best 0% balance transfer credit card deals'
Can I use a balance transfer credit card for purchases?
It generally isn't advisable to use a balance transfer credit card for new purchases as they will usually attract a hefty interest rate and in fact some cards won't even allow it. The 0% interest rate is generally reserved for balance transfers only and so if you are looking to use a credit card for purchases you should probably consider getting a different credit card for that purpose.
Another thing you've got to bear in mind is that credit card companies don't love you, they are doing this because they want you over on their credit card because they want to make money out of you. Therefore they charge you a fee for transferring and purchasing because if they're not charging you any interest they need to make money somehow.
Once they have you they're hoping you're going to relent and start spending money meaning they can charge you high interest rates on the money that you borrow.
The other thing to bear in mind is that just because a deal is advertised it doesn't mean you'll get it. There are rules stipulating what percentage of applicants get the deal, but ultimately it depends on your credit score. For example, you may apply for a credit card with an 18 month 0% interest term, but only get accepted for a 12-month term.
Another thing to remember is that depending on your credit score, you may not get accepted for the full balance transfer that you have applied for. For more information on credit scores and how to check yours, read our article, 'The best way to check your credit score for free'
How many times can I do a balance transfer?
You can transfer your credit card balance as many times as you like, and the best way to manage credit card debt, besides paying it off, is by transferring to another 0% deal when each deal ends. However, you must be aware that it could affect your credit rating as each time you apply for a new credit card it is noted on your credit report.
For more information on managing credit card debt take a look at our last video, "Top tips to paying off credit card debt."
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