Debt and 0% credit card transfer

[scandalo]

I've decided I have to face and tackle my debt - £6k on a credit card. I earn well so can absolutely afford to pay it off I just need to be disciplined.

I think I'd like to transfer the balance to a 0% interest card and pay off monthly - I think I could afford £300-400 a month.

But I don't understand the balance transfer fee, do they add a percentage of the debt to your card? Or do you pay up front. And is it really 0% or just 0% on new payments?

Sorry to have stupid questions- money and maths not my strong suit.....

There are different deals, some are just 0% on the transfer, some on purchases, for varying amounts of time. Ideally you don't want to add to the debt though! The fee is added to the balance

It'll be 0% for a set time probably.
Definitely worth doing.
Also- the deadline of an interest rate hike at the end will be motivating.
Good luck.

Not a silly question. I recently transfered about £3000 to a Tesco 0% card (like you, I'd been ignoring it a bit).
The 3% fee is added to the balance after the transfer- so £30 ish.
Now I'm chipping away at it. There is still a minimum payment needed each month, if I miss it then I loose the 0% deal.
Keep an eye on the old card balance, there may still be a payment due after balance has been transfered.
Any new borrowing is charged at a higher interest rate, only the transfered balance is at 0%.

Yes fee added. So if 3% and your balance is 6000 you'd have a new starting balance of 6180. That's likely to be a lot less over the time it takes you to pay down compared with regular interest though. Martin Lewis's money saving expert site always has good advice and info on the best 0% deals, how to work them, and has an eligibility tool as well. Good luck!

Say the balance transfer fee is 3.5%. Your balance is £6000. So the balance transfer fee is £210.
Your new credit card will show a balance of £6210.
The 0% is for 12/18/24 months on that initial £6210. If you use the card after that, to pay for stuff, the fee is NOT 0%, you incur a massive interest.
Monthly you’ll need to make minimal payments. On £6000 it’s about £150.

I have the same amount on a card. What I did was open a Lloyd’s regular saver, which allows me to put £400/month at 6% interest. After 12 months I have £4800 in Lloyd’s, plus interest, so at maturity I just transfer the lot into the credit card.

do they add a percentage of the debt to your card? Yes, so if it's 3%, they'll add £180 and your new balance will be £6180

Then you just have to make at least the minimum payment each month, based on the balance on the card including the fee. This is likely to be lower than the £3/400 you can afford, so if you want to pay off the debt asap you'd probably be best setting a SO for £300 and pay it off that way. Or you could pay the minimum by DD and top it up manually by whatever you can afford.

The interest will be 0% on the balance transfer, providing it is done within a certain period - eg 3 months of opening the card, then for 12 months or whatever the offer is. As to whether interest is charged on new spending, that depends on the card, some are 0% for balance transfers and spending, but seeing as you're looking to pay off debt, this is probably best avoided even if interest free.

But have you looked to see if there is a fee free deal? I stooze (run a 0% credit card balance and offset this with savings earning up to 5%) and have kept a £10-20k balance running for about 20 years, changing every year or so and have never paid a fee for doing so. Look on Moneysaving Expert to see what the best offers are.

The 0% is sometimes for a set period, a year for example do be mindful of this (you can always get another cheap deal when it runs out).

Anither option is to convert it to a loan if you can find a cheap interest rate. Anything will be better than a credit card rate.

I use 0% credit cards a lot. Not as a way to pay off debt I already have, but as an interest free loan. I'll buy a car or a something else that I want on one credit card and then do a balance transfer to 0% card. It's the same as an interest free loan. I then divide the total cost by however many months the deal is for and make that my monthly payment. I stress though that I'm doing this for things that I can afford to pay the monthly payments for but using the banking system to my benefit.

It's a great plan to pay off more debt for you OP. Be aware that the interest free card will not allow 100% of your credit limit to be used for balance transfer. For example, if your limit on new card is 6000 you might only be allowed to transfer 90% or something. The rest would stsy on the current card eith interest charged. This is still worth doing because the bulk of the debt will now be interest free and the remainder will much lower amount so much less interest. More of your payments will be spent on the actual debt rather than interest.

Thanks all

One last question, if I applied for a 0% credit card to make a big payment but then paid it off in full 2 months later would it hurt my credit score?

A big payment for what? Another credit card, or if you buy something?
I paid for a holiday for 4 of us on a 0% credit card. When the others paid me 3 months later, the balance became zero, because the minimum payments covered my share. It didn’t affect my credit score.

Why do you care about the credit score, do you have a mortgage renewal pending or something?

Hi @BuddhaAtSea yes we have to remortgage. I have a bonus coming in June but will likely need to buy a new boiler soon. So I am considering putting that on 0% but can pay it off in full within 3 months.

With my mortgage, they looked at the past 3 months’ finances, is June giving you those 3 moths? I shouldn’t think it matters, it’s paid 🤷🏻‍♀️.

This conversation reminds me of my situation 9 years ago, it was a nerve wracking time. It took me 9 whole years to save a year’s worth of salary 🤯, I swore I’d have a safety net some day.