Are 0% Balance Transfers Worth Considering?

If you have a lot of credit card debt and want to take steps to get it under control, you may have considered a consolidation loan or, what can seem like an even easier option, the 0% credit card.

Most loans that allow you to consolidate your debt will be low interest, and end up with you paying less back over time than you would with your current arrangements. But 0% credit cards, if you qualify for one, can offer a no-interest option. You’ll pay the amount back that you owe right now, but with no interest whatsoever.

There are a number of credit cards that allow you to take the balance outstanding on one or more other credit cards, transfer it to a new card, and pay it off over time, without paying a cent in interest, and you can often get approved for a card online, sometimes in minutes.

So what’s the catch? Honestly, there are a few.

There May Be a Fee to Transfer Your Balance

This is usually charged at a percentage of your outstanding balance, often with a minimum charge in place if you’re transferring a relatively low amount.

A few cards offer no-fee balance transfers, but this may mean the overall terms are less favourable. The time you get to pay back may be shorter, the minimum monthly repayments higher, or the long-term interest charges (that kick in if you don’t pay your original amount back in time) may be higher.

There’s Always a Set Time to Pay Back

This is generally offered in number of billing cycles, which tend to roughly correspond to months, and could be anything from six to 18, 21, or even longer. The thing to keep in mind is that the time will pass, sometimes more quickly than you think, and that deadline will likely creep up on you.

Have a plan to pay off the card in full by the time the interest-free period is over, and consider that unforeseen circumstances may mean your financial situation gets worse, not better.

You Must Meet the Monthly Minimum Payments

It’s not a case of just get the card and think about it again in 18 months, or whenever those interest payments start up. If you don’t make your monthly minimum payments you’ll not only incur a late fee, you’ll probably  lose your interest free privileges and end up back where you started, or worse. Make sure you never miss a minimum payment on an interest free card.

Applying for a New Card Can Hurt Your Credit Score

Depending on where your score is right now, this may be no problem at all, or a fairly significant one. Remember that the more often you apply for new cards (or other forms of credit) the more your score will go down. It’s worth checking if you’re likely to qualify for a new card first, before applying and having those credit checks impact your score.

You Need to Be a New Customer

Most of these deals are there to lure in new customers, so if you already have an account with a particular bank or card provider you probably won’t qualify. You also may not qualify if you’ve ever been a customer of that particular provider, so you’ll need to find a new-to-you company offering an interest-free deal.

You May Be Tempted to Keep Spending

Some of these cards offer 0% interest on new purchases as well as balance transfers. This can be a good deal if you have big purchases to make and a solid plan to pay them off within the interest free period, but it may be tempting to just keep spending while all purchases are interest free.

If your aim is to pay down debt that you’re currently struggling to clear, you’re better off just using the balance transfer option to cut your interest to zero. Then put the card away and focus on getting your spending under control while you save to pay that balance off before the interest kicks in again.

The (Eventual) Interest Rate on the Card May Be a High One

If you can find a card with a long interest-free deal it may seem like a problem for future you, but the interest will come due eventually, and it may be even higher than the interest you’re paying now. You’ll definitely want to have a plan in place to pay the card off when the interest free period is over. Ideally, you’ll set up an interest bearing savings account and put aside enough each month that you can pay the card off in full when it comes due.

Yes, there are people who just transfer the balance to another interest-free card when that time comes. If it’s been a while since you applied for the last one, and you’ve made all your payments (on this and any other debt) in the meantime, you may find your credit score good enough to do that, and may even find a better interest-free deal. But do you really want to keep juggling this debt? Making a plan to pay it off will probably make you feel a whole lot better.

A 0% balance transfer can be a great way to eliminate interest while you pay down consumer debt. Just make sure you’ve considered all the drawbacks before you take the plunge.

Karen Banes is a freelance writer specializing in entrepreneurship, parenting and lifestyle. She writes articles, website content, ebooks and the occasional award winning short story. Her work has appeared in a range of publications both online and off, including The Washington Post, Life Info Magazine, Transitions Abroad, Brave New Traveler, Natural Parenting Group, and Copia Magazine. Learn More About Karen