Your money-making expert. Financial journalist, TV and radio personality.
Thought that would get you interested.
No, the 0% balance transfer credit cards are not a scam in the usual sense. They’re legal and a really good idea for the people who know how to use them.
If you’re clever and you’ve got a fair amount of money owing on your credit card, then it’s a great idea to switch to one of the 0% balance transfer cards – particularly the new 30 month one from Barclaycard (two and a half years-worth of 0%!!). What you will do is pay off the minimum each month and put extra cash into a savings account at the same time so that by the time you get to the end of the 0% period you will have enough money to pay off the balance (or most of it), having grown your money while paying off the debt at no interest.
You could even do a belt-and-braces approach, if you feel you’re not disciplined enough to keep the money in the savings account) and just overpay a bit on the credit card each month and only put a small amount into the savings account. That way you will know you’ve paid a decent amount of the debt by the time it comes to the end of the 0% period.
But….that’s NOT what most people do!
It’s amazing but this is how the credit card companies have worked it out.
They can afford to offer these incredible 0% deals because they know that about three quarters of us won’t pay off the debt in that time. In fact we won’t pay more than the minimum! Then at the end of the term they will able to shove us onto a nice high interest rate and they can claw back their money that way.
Not only that but while we have the card they will be bombarding us with attempts to sell us other products like loans, mortgages, insurances and the rest.
Now, I don’t mind the sales stuff. Frankly I think it’s reasonable if they’re losing out (as they are) by giving us all those months at 0%, but I would like more people to use these cards wisely and not just see them as a cheap loan that they can keep on going and going.
It’s not that the credit card companies are forcing us to do anything. They’re tempting us, yes, but it’s up to us to decide what we’re going to do with this temptation.
Are we going to take the good part (the 0% interest for months and months) and discipline ourselves to pay it off asap? Or are we going to go with the temptation and just pay off the minimum, keeping the debt on our backs for years longer than we need to?
I’m definitely recommending that people take out a 0% deal if they can but be one of the clever ones. Use it for your purposes. Help it to save money for you. Don’t help the credit card companies to make more money for themselves.