The difference between 0% Balance Transfer
Credit Cards and 0% Purchase ones
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Last update : March 2010
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| A balance transfer card as its name suggests is used for transferring a negative balance from one Credit Card to another.
No interest will be charged on this debt for the term of the deal, usually 6 -15 months. There is a charge for transferring a balance, usually 2.5% - 3%.
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| So theoretically the deal is not free, nevertheless these cards can save a lot of money if you're looking to pay off built up debt. |
| A 0% Purchase card works like this |
| When goods or services are bought you pay no interest on the amount for a set period of time, usually 6-12 months.
So buy a new sofa or pay for a flight costing £400 and no interest is charged for say a 9 month period. But you will still have to pay at least the minimum balance every month, usually 2% - 3%.
However, whereas 0% balance transfer Cards are excellent for people who want to pay off their debts, 0% Purchase Cards in my view are very dangerous because they encourage spending.
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| 0% Purchase Cards can play tricks on our minds |
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Many people have discovered the problems with 0% Purchase cards having been sucked in by the clever marketing because anytime money is offered interest free it's often seen as a great deal.
True to a certain extent but the real question is this -
Would you have spent using the card if there was no interest free deal?
Chances are no, so the card company has induced spending on your behalf. Of course this doesn't really matter if you repay the debt within the set time period. Sadly, many don't which means they'll start to pay interest and hence the card company has done well.
But 0% Purchase Cards can be an excellent tool to use in the right circumstances. For example -
- Somebody who moves house can use one (or more) to buy new furnishings and other items related to the property
- The right goal to aim for would be to stagger the monthly payments over the term making them easier to budget. For example -
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- Spend £3,000 using a 0% Purchase Card
- Divide the amount by the number of interest free months, in this example 9
- Then make 9 monthly payments of £333
- At the end of the term the balance will have been paid in full
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| See also -
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Read more in the Credit Cards section:
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