Choosing An Interest Free Balance Transfer Credit Card
January is the busiest time of the year for banks to process applications for their interest-free balance transfer credit cards. If you have over-indulged during the festive period and are looking to get your finances back on track, these transfer deals are the perfect solution.
Choosing the right card can be tricky, however, as you must look at the fee as well as the length of the interest-free period.
Here is a simple five-step guide to securing the best balance transfer deal for your needs.
#1. Speak to you existing provider
Most of the top balance transfer deals are for new cardholders but you may be able to secure an interest-free deal from your existing credit card provider. This saves you the hassle of applying for a new credit card with a different lender.
Phone your provider and ask whether they offer balance transfer deals for existing customers. If they do, transferring your balance to that account will be the easiest way to secure a great transfer deal.
#2. Work out how long you need
If you have resolved to reduce your debt in 2014, many banks are willing to help you stick to your New Year's resolution.
Barclaycard is now offering a 30-month balance transfer deal so if you applied now and transferred your debt in February 2014, you would pay no interest until August 2017.
If you need a long time to pay down your debt, Barclaycard isn't the only option. Tesco Bank and MBNA offer 29-month deals while Halifax is hot on their heels with a 28-month offer.
This has become something of a New Year's battle between banks to offer the longest deal, giving you a range of choice for paying off your debt.
#3. Decide what transfer fee you are willing to pay
Buying yourself time to pay down your debt is great, but the transfer fee is an important factor.
These super-long interest-free deals have a sting in their tail and make quite hefty charges to transfer debt. Tesco Bank is the costliest, charging 2.9 per cent while Barclaycard and MBNA charge 2.89 per cent.
If you are happy with a 29-month deal, Barclaycard also offers a card with a lower 2.49 per cent charge for this duration, making it cheaper than bother MBNA and Tesco Bank.
#4. Decide whether you plan to pay off the debt
Assuming that you have an average £3,000 balance, switching to the 29-month Tesco Bank card would see you pay a £86 fee.
While long deals are great for people who plan to pay off their balance during the interest-free period, they do attract a high charge.
One alternative solution is to transfer your debt to a card with a shorter interest-free period but a lower fee. For example, Halifax offers a 15-month card with just a 0.8 per cent fee.
This would be £24 on a £3,000 balance. You can always transfer the cash to another card before the interest-free period expires.
#5. Calculate whether you can afford to make the minimum payments
Unless you have an excellent credit score, you are unlikely to be offered the best cards or the best rates.
Banks may reject your application or offer you a shorter interest-free period after running a check on your credit file.
Always remember that cheap balance transfer deals are designed to make lenders money when you fail to pay them off or switch to a new deal before the low rate ends.
You should always calculate whether you can afford to make the minimum payments every month.
Some lenders will snatch back the coveted interest-free deal on your balance transfer if you fall behind and can't make the minimum monthly payments.
At this point, the interest rate on your debt will jump and you will be paying far more than you anticipated. Always check the lender's conditions before you sign up.
Choosing the right interest-free balance transfer card is harder than it looks. You need to take account of your goals, income and ability to repay the loan.
You should always aim to clear debt or switch to a new deal before the interest-free deal ends, or else the cost will rocket.
You may lose the deal if you fail to pay the minimum monthly repayment, so it's unwise to spend on interest-free balance transfer cards as the interest rates are usually higher than other cards. Banks always put repayments towards the most expensive debts first.
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