It’s easy to reach the limit on your credit card and find yourself paying back the minimum amount each month while watching the interest clock up so those advertisements we see on television for credit cards offering 0% interest for fixed periods are really tempting but are they worth changing to?
Broadly speaking the answer is yes but you need to choose careful and for the right reasons. You also need to be disciplined. This process should not be seen as a quick fix solution.
Always look for the longest interest free period. The idea is that you want to clear as much of the balance as possible during the interest free period. This process should NOT be used so that you transfer the balance and continue to rack up debt on the old card.
Changing credit card providers to take advantage of a 0% interest rate is to save money. These cards, when they revert to full interest, usually have a higher Annual Percentage Rate (APR) than average. (Credit cards are about short term borrowing so interest rates are higher than for a bank loan.) Always try to clear the balance before the rate jumps up.
There will always be a one off charge to transfer a balance, usually about 3% of the balance transferred. However, over the course of a year it is usually better to pay a 3% fee rather than 12 – 15% interest on the balance.
If you find yourself at the end of the 0% interest period still with a debt on your credit care then it may well be in your best interest to change to another provider.
If you’re in a position where you can’t or don’t want to move to a different provider in the first place then have a chat with your current provider to see if you can negotiate a lower interest rate.
If you end up with a whole load of credit cards with zero balances at the end of the process then it will be worth cancelling some of the cards at that point. This has a couple of positive impacts. Firstly it removes the temptation to use the cards. Secondly it will improve your credit score If you look for further credit such as a mortgage or loan then the potential lender will get worried if they see that you could access a lot of unsecured debt via credit cards. They are concerned that you may get the loan/mortgage then max out the credit cards afterwards. When lenders get nervous they tend to say no to the lending.