The Best 0% Balance Transfer Credit Card In Town

We take a look at the classically Foolish product -- the 0% balance transfer credit card.

This email was originally sent to Fools as a standalone email in our The Good, The Bad and The Ugly' series. 

As we continue our 'The Good, The Bad and The Ugly' series, today it's the turn of a classically Foolish product - the 0% balance transfer credit card. Using one of these credit cards will put an instant freeze on your interest payments, giving you a great opportunity to attack your outstanding credit card debt.

However, there is one big potential problem with the vast majority of 0% balance transfer cards. It's called negative payment hierarchy. In other words, the least expensive debt on a credit card (such as a 0% balance transfer) is repaid first. This leaves more expensive debts (usually purchases and cash withdrawals) on your card for longer where they can rack up even more interest on your bill.

So if you transfer a £2000 debt to a balance transfer credit card, and then buy a TV for £300 with the same card, you'll be paying interest on the TV purchase until you've paid off all of your balance transfer.

One way round this problem is to have one credit card for your balance transfer and another one for purchases.

Another solution is take out a credit card with generous interest-free periods for both balance transfers and further spending. Until recently there were several cards which offered generous interest-free periods on both balance transfers and further spending. But sadly these are becoming increasingly few and far between.

In fact, there's now just one solitary credit card left which still offers a 12-month interest-free period on both purchases and transfers. This is the Halifax One Credit Card.

Interestingly, this year-long interest-free deal is only available through a handful of websites including The Fool. To take advantage of the offer, just visit our credit card centre. Don't make the mistake of applying directly to Halifax because you'll only be offered an interest-free period of nine months.

Most balance transfers involve a fee these days. Moving your balance to Halifax One will incur a fairly typical charge of 3%. That means a transfer of say £3,000 will set you back £90. Although, this might seem a little steep, I think it's a small price to pay compared with how much you'll save in interest over the next 12 months.

How To Make The Most Of 0% Balance Transfer Credit Cards 

If you're going to transfer your credit card balance, I would recommend you try to repay it in full before the interest-free period expires. Otherwise the higher standard APR (annual percentage rate) will kick in which is 15.9% (variable) on the Halifax One card. Worse still, if you aren't eligible for this typical APR you may be charged exorbitant rates of 18.95% or even 20.95%. So please try to avoid that at all costs.

The best thing to do is to repay a certain amount each month so the transfer will be cleared after 12 instalments. Based on a £3,000 transfer, commit to paying off £250 each month if your budget will allow and by the end of the interest-free period you'll be debt free. Hooray!

If your finances won't quite stretch far enough to clear your balance in a year then it's best to line up a new 0% deal in good time.

And take care not to miss any repayments or exceed your credit limit. If you flout the rules, your 0% deal will probably be revoked and you may be charged at the far higher standard interest rate instead. Ouch!

A final word of warning: In the current credit climate, credit card providers - in common with all lenders - are being urged to provide credit more responsibly. Halifax is no different so you may find your application is rejected if you have a less than perfect credit record. That said, you have the right to appeal against Halifax's decision and you can re-apply later on if your credit rating has improved.