When Balance Transfers Go Bad!

With 0% balance transfers, you can avoid paying interest for more than a year. However, some transfers fail -- and here's why.

My friend Dave has got himself into a spot of bother. (That's not his real name, but, according to new digital television channel Dave, everyone knows someone called Dave!)

Anyway, in common with millions of Brits, Dave has been spending more than he earns for quite a while. Thus, he's built up a debt of, say, £5,000 on a credit card. The problem with Dave's credit card is that it's an expensive piece of plastic, charging an interest rate of close to 20% a year. By my reckoning, Dave is paying at least £900 a year in interest on his `flexible friend'.

Dave's problem is made much worse by the fact that he's paying only the minimum monthly repayments (MMRs) which his card requires. As Dave's MMR is just 2% of the outstanding balance, his monthly repayments are around £100. Thus, Dave's debt is reducing by barely £10 a month, so it will take a lifetime for him to clear his balance at this pace. Ouch!

To cut a long story short, Dave asked me for help with bashing his debt burden. One of my first suggestions was to `stop the clock' on his interest bill through the use of a 0% balance transfer card. By transferring his £5,000 debt onto one of scores of different cards which charge no interest on transferred balances, Dave can freeze his interest bill for a year or more. This valuable breathing space will save him close to £900 a year -- extra cash which he can use to repay his debt faster.

So, off went Dave to find a 0% deal. Unfortunately, he made the mistake of going into his local branch to open a new credit card. Although he has a shiny, new card, he can't transfer his existing balance onto it. That's because his new credit card is issued by the same firm which issued his existing credit card. In common with all other credit-card issuers, this company won't allow customers to transfer debts between its own cards. Sadly, this means that my mate Dave is back to square one!

Who issues your credit card? Recently, I've heard more and more Fools complain that they've been caught out by not being able to transfer balances between cards issued by the same firms. Thus, in order to help you out, I've trawled through a list of the 96 cards which offer 0% balance transfers and then grouped them into the following lists. My data comes from Fool.co.uk's independent, unbiased search wizard for credit cards.

So, let's start with five big players, in alphabetical order:

1.    Citifinancial Europe: Bmibaby, Citi and Shell

2.    HBOS: AA, Amazon.co.uk, Bank of Scotland, Britannia BS, Halifax, Marriott, Norwich & Peterborough BS and Sainsbury's Bank

3.    HSBC: Hilton HHonors, John Lewis and Waitrose, Morrisons and The GM Card

4.    MBNA Europe Bank: Abbey, Alliance & Leicester, Bank of Cyprus, Cheshire BS, Dunfermline BS, MBNA, Melton Mowbray BS, SonyCard and Virgin Money

5.    Royal Bank of Scotland: MINT, NatWest, RBS, Tesco and Ulster Bank (NI)

Of the remaining card issuers, the following offer 0% balance transfers under these brands:

So, before applying for a credit card for a 0% balance transfer, find out which firm issues it -- see Baffled By The Brand for a comprehensive listing. Otherwise, you may find that your new credit card won't accept transfers from related cards. Lastly, do watch out for transfer fees, which can add 2% to 3% to the cost of each transfer.

Here's hoping you join me a successful 0% `rate tart'!

More: Cut the cost of your credit card today | Cheap Credit For Crafty Customers | Avoid Interest On Your Debts