The purpose of a 0% balance transfer and 0% purchase rate credit card is to enable you to pay off an existing credit card debt while still being able to make interest-free purchases. When used responsibly, these credit card deals can provide cardholders with relief from interest on their debt. Revert rates apply to any existing debt after the promotional period ends, so it's important to pay off both of the balances in full to avoid interest.
How do 0% balance transfer and 0% purchase rate credit cards work?
These cards charge no interest on both purchases and balance transfers for a promotional period. The interest-free period can be as little as 3 months or up to a year or longer in some cases. You can use one of these cards to save if you want to pay off existing debt and make new purchases without paying interest. At the end of the introductory period, the standard purchase or balance transfer rate will apply to any remaining balances respectively.
The length of the interest-free period may differ between purchases and balance transfers. For example, the card may offer 0% on balance transfers for 12 months and 0% on purchases for 6 months. In this case, any remaining balances from purchases (plus any made in the future) will attract the standard purchase interest rate. The 0% rate will still apply to your balance transfer debt for the next 6 months.
While you're only required to pay the minimum repayment amount each month, it's important to create a budget and repayment plan that will allow you to pay off your balances in full before the promotional period ends.
What happens if I spend with a 0% balance transfer credit card that charges interest on purchases?
When you make a payment with your card, the debt on your credit card that attracts the highest interest rate will be paid off first. If a card charges a purchase rate but no balance transfer rate, your repayments will go towards your purchases first. If this is the case, you need to make sure you're paying off enough to repay your purchases and the balance transfer debt. Otherwise, you'll be wasting your 0% balance transfer offer. Plus, if you attract interest on your purchases, it could quickly outweigh the savings you're getting from the 0% balance transfer.
How to compare 0% balance transfer and 0% purchase rate credit cards
When comparing cards, it's important to select the type of card that is most suited to your circumstances. You can compare some of the different card types and features you should pay attention to below:
Length of interest-free offer. The length of the 0% introductory period can range from 3 months to 24 months in some instances, so you want to make sure that it gives you enough time to pay off your purchases and balance transfer in full. If the interest-free offer is longer than 12 months, make sure to calculate any annual fees when deciding
Revert interest rates. Even if you aim to pay off your balances before the interest applies, check what interest rates will apply to your purchases or balance transfer after the introductory period.
Reduced annual fee. As you might've noticed when browsing some of these cards, they often charge a reduced annual fee for the first year. This can help keep your upfront costs low while you knuckle down to paying off your debt.
Reward points. Some of these cards are linked with frequent flyer or rewards programs, allowing you to earn points as you spend. They may not offer as competitive earn rates or bonus points offers as some other rewards cards and balance transfers (or balance transfer repayments) don't usually collect points.
Platinum cards. Platinum credit cards are targeted at higher income customers and they often require a shining credit history. In return, you get higher credit limits as well as more valuable extras, which often include complimentary overseas travel insurance.
Classic cards. Classic credit cards are a good choice for people on a lower income. They are usually a no-frills option with lower annual fees than platinum cards.
Low rate cards. These are a popular offering in the 0% balance transfer and 0% purchase rate scene, as purchases on these cards usually revert to a relatively low interest rate after the introductory offer period is over.
Your 0% balance transfer and 0% purchase rate credit card will be a huge boon during its initial offer period, but only if you make effective use of it. Keep in mind the main dos and don'ts when using this type of card:
Transfer your balance quickly. Many credit cards require you to request the balance transfer at the time of application to take advantage of the 0% offer. While otheres may allow you to request the balance transfer within the first 30 days, it's important to remember that the 0% period applies when the card is approved (not when you transfer the debt across).
Pay off your balance in full. If the introductory offer lasts for 6 months, then make sure you are budgeting to ensure that the balance on your 0% balance transfer and 0% purchase rate credit card is paid off in full before the offer period expires. You will be charged the revert interest rate on any unpaid balance, which could be higher than 20%. However, if you find that you won't make it by the cut-off date, it may be worth considering transferring the balance again to another similar card from a different bank.
Don't make this a habit. Making one 0% interest balance transfer after another to avoid paying interest will be noted in your credit history. Your credit score may drop due to regular credit applications and the assessors of your credit file may well read into your habits and reject your applications for any more credit.
Don't make any cash transactions. Cash transactions (such as ATM withdrawals and gambling transactions) aren’t often included in 0% interest promotional offers, and when they are, they still carry very expensive cash advance fees.
Only paying the minimum repayments. Pay your credit card balance in full each month whenever possible. If you can't do that, then make sure you're at least paying the minimum monthly repayment to help you avoid late fees. Calculating your own minimum monthly balance repayment is as simple as looking at what the minimum repayment percentage is (usually 2-3%) and calculating this against your outstanding balance, interest included. You can also use an online credit card repayment calculator to work out what your minimum monthly repayments will be.
During the 0% purchase rate offer period, your purchases won’t incur interest.
However, after the 0% offer period ends, you will be charged interest at the purchase rate. This will be charged from the date the transaction takes place if you’re carrying a balance from month to month, as interest-free days are waived on unpaid balances.
During the 0% interest offer period, 0% interest is applied to the outstanding balance.
After the offer period ends, if you don’t pay your balance in full by the end of the statement period, you will not receive any interest-free days on purchases you make with the card.
Yes. The minimum monthly repayment must be paid each month to stop your card from going into default. If you have a balance transfer promotion that's charging 1% interest and the minimum monthly repayment is 3%, you’ll be paying off 2% of your balance each statement period.
Yes, there were such offers at the time of writing. These offers change regularly, so the best way to stay up to date with the latest offers is to check our balance transfer comparison page.
Sally McMullen is Finder's credit cards and frequent flyer editor by day and a music maven by night. Her byline can be spotted on Yahoo Finance, Dynamic Business, Financy and Mamamia as well as Music Feeds and Rolling Stone.
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