The world of the 0% balance transfer credit card is a competitive place but little is mentioned about credit card money transfers. Here's what you need to know about transferring cash from your credit card.
When you make a credit card money transfer you move cash from your credit card to your current or savings account - rather than to another credit card (as you do when you make a balance transfer).
This means you can use a money transfer to unlock some of your credit limit and borrow money from your credit card without paying cash advance charges.
Better still, if you find a credit card that offers a 0% rate on money transfers for an introductory period then you have a really affordable way to borrow.
However, not all credit cards permit money transfers and only some will extend a 0% rate to money transfers so you need to do your research if you want to get the best possible deal.
When you make a standard balance transfer you move a balance from one credit card to a new card that (preferably) charges you less interest.
However while most balance transfer credit cards limit you to transferring funds between one credit card and another, those that offer money transfers allow you to send cash from your credit card to any bank account of your choosing. This means you can draw the money as cash and use it as you choose.
Ultimately using a money transfer puts cash in your hand straight from your credit card. So if you have a large purchase to make, a non-credit card loan to clear, or need access to funds quickly then making a credit card money transfer could be a cheap method of borrowing in the short term.
You could also use a money transfer to clear your overdraft, especially if your bank balance is consistently in the red and the hefty rate of interest you’re being charged is only making it worse. However if you intend to do this it is important you remain disciplined so you don’t end up back where you started - but with an outstanding credit card debt to repay as well!
Alternatively if you don’t need the funds immediately you could consider trying your hand at 'stoozing'.
This is the process of transferring cash from a 0% credit card into a high interest savings account, then making the minimum payments on your card until the interest free deal ends (at which point you transfer the cash back to clear the balance).
The theory is that you’ll earn a nice chunk of interest on the money you’ve borrowed while it’s in your savings.
However, as tempting as it is to try and take advantage of money transfer deals the advent of hefty balance transfer fees mean the amount you’ll need to spend to make the transfer often outweighs the interest you can earn in even a best buy savings account.
If you are considering a money transfer it's important to be aware of the costs involved.
If you can find a credit card that extends a 0% deal to money transfers then you'll have a comparatively cheap way of getting your hands on cash. You won’t accrue any additional interest on the cash you’ve borrowed for the duration of the introductory offer. However you will be charged a handling fee that’s likely to be around 4% of the amount you borrow.
Money transfers that don’t fall under a 0% deal are likely to be much more expensive and probably not worth considering unless absolutely necessary.
Therefore it’s important to check exactly what you will pay for the service and shop around for a card that charges the lowest fee for the longest interest free period on money transfers.
After making a money transfer you will need to make at least the minimum payments required by your credit card provider.
Fail to do this and you’re likely to incur significant charges, late payment fees and, in all likelihood, lose the 0% introductory offer that was making borrowing so affordable.
Make a note of when your interest free period is due to end so you can pay off the outstanding balance or consider moving to a new 0% balance card before this date.
If you don’t do this you’ll be charged interest on anything remaining on the card and the rate you’ll pay is likely to be higher than the standard purchase rate advertised by the credit card provider.
To avoid this worst case scenario, you need to have a plan to repay the debt.
Treating it like a loan is one good solution - work out how much you’ll have to repay each month to clear the balance before you start being charged interest and stick to it until it’s all gone.
Ultimately money transfers can be a useful way of accessing cash but it is worth weighing up all your options, choosing a card carefully, and making a clear plan to repay the borrowing before you take advantage of a credit card money transfer deal.