The Need for Care When Transferring Credit Card Balances

by : Linsey Summers

Advice for those who have balances on their credit cards is to switch to a provider who offers 0% interest on balance transfers. figures show that approximately 150 credit cards presently offer a 0% charge on balance transfers.

Analysts warn that if customers are considering to take advantage of transferring their balance at no charge they should be careful to repay what they owe before the standard interest rate kicks in.

Research from Marks and Spencer Money has shown that a minority of customers benefit from 0% rates. They calculated that credit card holders transferred approximately ?2,763 but only 25% of these customers had entirely cleared their outstanding balance before the 0% interest period finished. They then went on to pay the standard interest rate on the new cards which is 15.9% on average.

If a cardholder believes that the interest free period is too short a time for them to successfully pay off their outstanding balance the advice it to transfer to a card that has a low interest rate while the amount is on the card.

An example of this is M&S Money that has a card that does not charge for balance transfer and has an interest rate of 3.9% while the outstanding balance rests on the card. Transferring amounts in this way may cost less than constantly switching cards.

Another consideration when transferring balances is 'negative payment hierarchy'. This is when payments made reduce only the transferred balance not any new purchases that have been bought with the card. The new purchases are not paid off but are charged at the standard interest rate of the credit card company. The transferred balance is paid off first and only then will any new purchases be paid off. This can mean that new purchases gather an interest rate of up to 15.9% APR.

This can be dealt with easily. Tracey North, spokeswoman for, said: "Often people will have two cards, one for balance transfers and the other they use for purchases."

Those wishing to find cards offering 0% on purchases for a specific amount of time can find them online. Presently Egg has this kind of offer lasting for six months.

Credit cards are offered by building societies, banks and can be found in the occasional high street shop. They will take into account someone credit score when they are considering whether to give them a credit card.

The lender will set a credit limit and is legally entitled to inform the customer what the interest rates are for their particular card. If the cardholder attempts to spend more than their limit their card maybe stopped or there will be a hefty interest rate penalty.

It is important to repay at least the minimal monthly amount or there will often be a significant charge or rise in the interest rate.