Balance Transfers and how they work

Help1988

Hi there,

if you have a credit card that allows you to do a balance transfer which is 0% interest for 12 months, and you do this but then make purchases on the card as well, does the blance transfer amount continue to earn 0% interest, or do you start earning interest on the whole amount once you start making purchases? Sorry if this is a silly question, or a ridiculously complicated way of saying, "if I make purchases on top of a 0% interest balance transfer, will this make the 0% deal void".:rotfl:

Thank you for any help in advance

Cornucopia

Yes - for most cards, making purchases will adversely affect the 0% BT deal.

gglaze

NO, it does not at all.

(someone please correct me if I'm wrong here)

Technically, making purchases on a card that already has a 0% BT deal will affect the rate of the purchases balance, but certainly not the rate of the 0% BT balance.

Your 0% balance will still be at 0% - making purchases does not affect that. The only thing that can adversely affect your 0% balance is if you do something to violate the T&C's such as a late payment.

The problem with making purchases on the card is, first you will lose your "up to 56 days grace period", meaning your purchases will start accruing interest from the first day, at the normal purchases rate, regardless of whether you plan to try to pay that part of the balance off fully before the next payment due date. Second, because you will get some interest resulting from that on your following statement, that interest will continue to accrue further interest every statement afterward. In effect it is near impossible to ever get back to the point that your card is only on the 0% balance, if that is your goal - even if you pay the full amount of the purchases balance exactly the day after your statement comes out, you will still have a few pence resulting from that 1 day of interest, which will then continue to accrue more interest on the following statement, and so on. So it may be only a few pence or a few pounds, but it will always be something more than 0, which is unfortunate since you originally had only a 0% balance.

This is why people recommend to use separate cards for BT vs for purchases. If you have a dedicated card for purchases, you can benefit from the "up to 56 days" grace period with no interest, and then pay off the full balance if you like, and never actually owe any interest.

shiny76

The simplest advice is not to make purchases on a 0% BT card.

You can do it and it wouldn't invalidate the 0% deal BUT if you aren't completely on the ball then you could get yourself in a mess.

Could you use a separate card for purchases?

Help1988

Thank you for all your answers, all brilliant advice!! Basically I am slowly but surely working my way out of debt, and have nearly cleared a second credit card, and I am eager to close it, I am just worried there may be an emergency I need it for and, if I close it, will have to use my final credit card which has the 0% balance transfer on it, for any emergencies. I'm thinking maybe just lock the one I have nearly cleared away in a drawer where I can't get at it too easily!!:rotfl:

Thank you

shiny76

Help1988 wrote: »

I'm thinking maybe just lock the one I have nearly cleared away in a drawer where I can't get at it too easily!!

I've heard of people freezing their cards in a block of ice. They, quite literally, have a cooling off period!

Perhaps you should keep the 2nd card, once cleared ,for emergencies and either lock it away or freeze it!

TheGenerus1

gglaze wrote: »

The problem with making purchases on the card is, first you will lose your "up to 56 days grace period", meaning your purchases will start accruing interest from the first day, at the normal purchases rate, regardless of whether you plan to try to pay that part of the balance off fully before the next payment due date.

When the 0% on BT offer finishes, does the 56 day interest free on purchases begin (kick in) or do you never get this 56 day grace period on a balance transfer card?

Do you only get the 56 day grace period only on purchases cards?

Cornucopia

The 56-day free credit requires that the previous month's bill was paid in full (ie. the balance reduced to zero).

Once that has happened, the 56-day facility starts again, automatically.

gglaze

Exactly - the fact that you lose the 56-day grace period has nothing to do with the fact that you've used a 0% BT offer per-se - it is just the fact that you already had *some* balance on your card, of any kind.

Since a 0% BT is typically something we keep a balance on the card for over many months, it means your card never starts back at zero for the statement period, which is what is required for the 56-day grace period.

zerog

gglaze wrote: »

So it may be only a few pence or a few pounds, but it will always be something more than 0, which is unfortunate since you originally had only a 0% balance.

Can't you overpay a bit (i.e. pay off all the purchases and a bit of the BT) to restore the card to 0% BT only?

gglaze

It's a nice idea, and sure if you're lucky it might work. In practice I've been doing this for a long time and it hasn't worked - I always see a few extra pence rolling over each month.

I think the problem is this:
The interest will only show up on your account when the statement is issued. So even if you have a good idea of what the interest will be before the statement is issued, and even if you time your payment to arrive exactly the day after your statement is issued (or the day of even)... generally there is a 1-3 day processing period before the payment will be posted to your card statement. During this 1-3 day period you will still be accruing interest on that balance (of the interest of the previous period). In effect it is very difficult or impossible to pay off the amount of the interest with zero time to accrue further interest.

Overpaying won't really help this, because as you say, your overpayment will apply to that interest, and then to some of your BT balance - but not to the "future" interest you are going to see on your next statement, because again that interest doesn't show up until the end of the billing cycle, so at this point it's not even an "unstatemented" transaction - it simply doesn't exist yet, so can't be paid off. That's the fundamental problem - you can't pre-pay off your interest for the next period until you see it on your next statement - and by that point, it is already accruing further interest (because you don't have your 56-days grace period).