Credit Cards — 0% Balance Transfer
Most credit card issuers do not require cardholders to settle their bill in full, every month. Although it can be easier to pay off a credit card debt over time, the option of paying by instalments attracts interest charges — the interest rate on some cards can be as much as 30% a year, or more. As additional purchases are made, the more interest is added to the cardholder’s account, to the extent that there might come a point where the monthly repayment becomes a significant and increasing outgoing.
To ease the pressure on their finances, the cardholder may try to move some or all the debt to a new 0% interest credit card. That course of action, which is the equivalent to taking out an interest-free loan, can reduce the amount of interest the cardholder pays and help stabilise — or even reduce — his or her monthly repayments.
- Some card issuers allow cardholders to transfer more than one credit card debt to the new card. They will however set a limit on the total amount of debt that can be transferred, which is usually no more than 95% of the new card’s credit limit
- Providing the cardholder stays within their credit limit, he or she may be able to use the card for purchases, although interest may be charged on those transactions if they are not paid off in full, each month
- Most 0% balance transfer deals expire after a set period of time. At that point the 0% arrangement may be renewed, or the credit card company may start charging interest on the remaining balance (if any) of the transfer/loan
- Most card issuers charge a fee for a 0% balance transfer, which will be a percentage of the amount transferred — a charge of 2% or 3% is not untypical. Penalties may be applied for missed or late payments, or if the cardholder exceeds their credit limit.
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