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I have some credit card debt that is currently on cards where there is 0% interest for periods of between 14-22 months. There was a transfer fee of around 2.9-3.5% for the balance from old cards.

I originally intended to pay off these debts at the end of the 0% periods with the money I'm earning and saving. However, given that interest isn't being applied and the transfer fees are close to the rate of inflation in the UK, I'm wondering if I should just transfer my balances to another 0% card at the end of the offer periods and use my savings for something else?

What are the advantages and disadvantages to me in doing this?

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2 Answers 2

Unless you can have your savings earning more than the transfer fees, you should just pay the credit cards off before the interest free period ends. Also, there is the difficulty in finding new cards offering 0% interest continuously.

You are better off paying off all your bad debt as soon as possible, start saving and investing, instead of wasting your time and energy trying to find new offers of 0% for your transfers before it expires.

Rule of Thumb: Get rid of your Bad Debts as soon as possible; Keep your Good Debts as long as possible (as long as you can afford them).

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Remember that balance transfers are rarely fee free. As you state, there is a fee associated with the balance transfer. If your 0% rate is for 18 months and the fee is 3%, you are really paying 2% per year on the amount you transferred.

The advantage is that you can redirect the debt you transferred is interest free and you can attack other debt with high interest on it. This can save you in interest fees and allow you to direct more of your money towards debt. The disadvantage is that your 0% interest will expire and become a much higher interest rate. Unless you pay off the transfer before the expiration, you will have to pay off the debt at the higher interest.

How you decide to attack your debt reduction may need to factor in how long you expect to have debt and what other debt you have. Often times though, the savings in interest is less important than simplifying the number of debt accounts you have. The inspiration you receive from reducing your debt accounts is much more powerful. You realize reducing debt accounts allows you to actually see an end in sight and provides the recurring positive feedback that you are making progressing. This is why the advice to pay off your lowest balance credit cards first.

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