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Escaping the 0% Credit Card Trap

Card hopping is becoming more difficult than it once was with providers refusing many more ‘would-be’ customers.”

When the first 0% credit cards were launched on the market they seemed to offer the appearance of credit for nothing. When the 0% period came to an end there was initially no charge for transferring the balance to another 0% card.

So it became a case of "Why not?"

Using a 0% credit card is a good idea if you can clear the balance within the 0% offer period. But if you can’t, and especially as the exercise is more costly with the introduction of balance transfer fees - it is possible to get caught in a web of having to transfer time and time again to take advantage of the next 0% offer.

Consumers who continually transfer are known as ‘rate tarts’ and the only way to work the system is to keep on top of the 0% period and transfer just before the offer comes to an end.

It is also possible to run out of 0% card providers…

If this sounds stressful that’s because it probably is but there are ways to do something about the situation.

Consider switching the balance to another 0% Rate

If you are going to do this it is important that you try to pay the balance off as much as possible, or better still, get rid of it.

Card hopping is becoming more difficult than it once was with providers refusing many more ‘would be’ customers. If you are offered a new 0% card, use the next period of grace wisely. Bear in mind that providers now charge a balance transfer fee so every transfer costs extra money.

Don’t be tempted to spend, spend, spend

Under no circumstances should you use a 0% card to make any more purchases as these will be charged at the standard rate of interest and the cheaper borrowing is paid off before the more expensive debt. This means interest on the balance, which negates the value of the 0% interest card.

This obviously does not make financial sense so use this card to get your debt down and use another card for purchases.

Look at life of balance cards

If your balance is too big to have cleared by the time the 0% period ends it might be time to consider a life of balance card.

This can take the hassle out of continuously transferring. These type of cards have a fixed rate of interest that is payable as long as the balance sits on them. However, you can take as long as you need to pay the figure because there is no time limit on them. Look at a few of the deals on the market and you’ll find they often work out cheaper than a personal loan.

Consolidate your debts

Jumping about from lender to lender often results in a pick and mix selection of credit cards in your wallet. The first thing to do is to cancel any cards that you aren’t using. Lenders look at all of your available credit whether it is being used or not and make decisions based on this as to how much more credit to allocate to you.

If you do have more than three cards consider consolidating your debt into one place. This way you can keep an eye on one balance and really concentrate on paying it off.

Another danger with several cards is that you may forget to make a repayment, which can affect your credit rating. An easy way to tackle this is to set up a direct debit straight away but do read your statements because it may take longer than the first payment date, for the direct debit to be set up.

Refused credit?

If you are turned down by many credit card providers don’t keep re-applying as this simply damages your credit rating. Obtain a copy of your credit rating to see why this happening then start improving your financial profile.

If you are in this situation it won’t immediately help with your existing credit card balances. Two options exist. One is to pay your previous 0% balances now at the standard rates, being scrupulous not to miss a payment and your credit rating will start to improve.

Another is to re-mortgage but this needs to be thought out carefully. It might be worth doing the maths to compare the mortgage interest rate with the credit card rate and it also depends on whether your mortgage lender is prepared to let you increase your home loan.