0% balance transfers - what's the catch

bjtebuds

Hi,

I am new to using credit cards and wonder what's the catch with 0% balance transfers...

If I rack up a load of debt on a card with an initial interest free period, can I just keep transferring that debt to new a new card with a 0% balance transfer offer when the introductory 0% balance transfer window comes to an end? Is there a limit as to how many times I can move the debt round to other credit card providers? Will I reach the end of the road at some point?

Thanks!

Nebulous2

bjtebuds said:

Hi,

I am new to using credit cards and wonder what's the catch with 0% balance transfers...

If I rack up a load of debt on a card with an initial interest free period, can I just keep transferring that debt to new a new card with a 0% balance transfer offer when the introductory 0% balance transfer window comes to an end? Is there a limit as to how many times I can move the debt round to other credit card providers? Will I reach the end of the road at some point?

Thanks!

There are several catches, mostly avoidable:- 

Many people don't transfer again and simply start paying interest, which is why the lenders do it. 

Many people who take a balance transfer don't understand the rules, purchase on the card as well, and end up paying interest anyway. 

Most balance transfers have a fee. 

You may run out of road and not be able to transfer, if lenders think your debt is too high, your income changes, or credit conditions generally tighten. This is the most dangerous one. 



Otherwise fill your boots. Many people on here will have been transferring for years and saving the money, or paying down mortgages etc.... 

Ebe_Scrooge

As above.  In addition:

Don't confuse a Balance Transfer card with an interest free purchase card.  The former lets you transfer an existing balance that's on an interest-bearing card to a new card that charges 0% or a low-rate interest.  There's often a fee to pay for doing the transfer.  The latter lets you buy stuff using the card, and will charge 0% or a low interest rate.  On both cards there's sometimes a time limit as to when the transfer can be done or purchases made (typically within 90 days of opening the account).  Some will allow purchases/transfers at any point.  In either case, you must make the minimum payment every month.

bjtebuds said:

If I rack up a load of debt on a card with an initial interest free period, can I just keep transferring that debt to new a new card with a 0% balance transfer offer when the introductory 0% balance transfer window comes to an end? Is there a limit as to how many times I can move the debt round to other credit card providers? Will I reach the end of the road at some point?

This is the biggest gotcha of all.  You may be able to transfer any remaining balance to another card.  But it would be extremely imprudent to assume that you'll be able to do so.  So you must have money put aside to repay the full balance by the time the promotional rate expires.  Otherwise you're saddled with a large balance on the card that's now charging you a high rate of interest.

And even if you are able to do another transfer, there'll usually be another transfer fee to pay, so you need to factor that into your calculations.

cymruchris

bjtebuds said:

If I rack up a load of debt on a card 

Then your credit profile will worsen, and the availability of 0% transfers will likely decrease.

A sudden and continued up-spike in spend not married to an up-spike in payments can have a detrimental affect on your credit history and ability to get better products as lenders may perceive you're having difficulties. (Even if the perception is different from reality)

DullGreyGuy

bjtebuds said:

can I just keep transferring that debt to new a new card with a 0% balance transfer offer when the introductory 0% balance transfer window comes to an end? Is there a limit as to how many times I can move the debt round to other credit card providers? Will I reach the end of the road at some point?

You can, as long as you are disciplined, remain in gainful employment, markets dont turn etc. There is no limit to the number of times you can transfer.

Many people arent disciplined though and circumstances change, people plan to continuously bounce money for the low fee but then find they arent offered cards with high enough limits or arent offered any card at all and so become stuck with debts on 20%+ interest

[Deleted User]

FWIW I have done this plenty of times, tried to take advantage of having money in savings rather than paying the cards and using offers like cashback on transfers to lessen the fee or indeed, £0 fee cards. I have found over time, also affected by the current climate, that balance limits have decreased which would also be a problem if you were not paying the cards down and just paying the minimum. My last card was Natwest, I had a BT card with them before which was initially I think £5k limit, upped to 6.5k or something, I eventually closed it as I had cleared the balance and the offers were rubbish. Just got a new on a new offer of 33 months and 2.9% fee, limit was £2750 - perfectly good for me but if I had been carrying a balance of say £5000 hoping for a card of equal limit, I would be stuffed. 

My advice is always to take the balance, divide it by the number of months in the offer and then pay that amount every month to clear it down - that way if you do not get another offer, you are sorted

bjtebuds

Thanks folks, some good insights there

adindas

bjtebuds said:

Hi,
I am new to using credit cards and wonder what's the catch with 0% balance transfers...
If I rack up a load of debt on a card with an initial interest free period, can I just keep transferring that debt to new a new card with a 0% balance transfer offer when the introductory 0% balance transfer window comes to an end? Is there a limit as to how many times I can move the debt round to other credit card providers? Will I reach the end of the road at some point?
Thanks!

Most probably. The debt level (e.g risk for default) is one of the important criteria used by lenders to make decision whether to approve their favourable credit product.

People who read this forum regularly will notice that there are reasonable number of  people are complaining  they can no longer get BT/MT credit card especially does not meet the limit they are asking to keep rolling up their old debts.

Without a good preparation and plan to clear that debt, It is a risky game actually. Once you reach into that point, you will start triggering the default interest rate which could be  around 20%. This is actually the way they make money from people who get trapped into debt.

Also remember, in T&C it is highly likely they reserve the right where to ask people to clear out the debt with very short notice when needed.

But people are playing stoozing. Stoozing is different with keep rolling, racking up debt. It is about arbitrage where the people are moving money from zero interest to higher interest paying saving account, or offset mortgage. This is different with racking out debt as the money is always available when needed, even in a short notice.