Andrew Hagger of Moneycomms looks at how to make the most of 0% credit card balance transfers and ways to avoid some of the potential pitfalls.
It’s that time of year when many of us take a serious look at our finances particularly as the post-Christmas credit card bills are due to hit the doormat in the next couple of weeks.
Switching your card balances to a 0% deal can help you clear your balances more quickly and cheaply.
The credit card companies seem to be tripping over themselves to lend to credit worthy customers with HSBC, MBNA and Barclaycard all launching new offers in the last fortnight.
If you’re thinking of moving your balance to an interest fee card, this guide will help point you in the right direction.
- Double check exactly how much you owe – refer to your latest statement but don’t forget to include any additional purchases or payments you’ve made since then – if in any doubt give your card provider a call to confirm
- Use an online calculator to see what you’ll save by switching to a 0% card – check The UK Cards association or Money Advice Service
- Work out how much you can comfortably afford to pay back each month – ensure this is manageable within your monthly budget. Divide your outstanding balance(s) by the amount you can afford monthly – then you know how long a 0% term you need.
- Be aware the longest 0% term may not be the cheapest deal for you – As a rule of thumb, the longer the term of the 0% promotional deal the more expensive the balance transfer fee, so don’t opt for 34 or 35 months if you know you can clear your debt much sooner – for example Santander 123 offers 23 months with no balance transfer fee.
- You can’t transfer card debts between certain credit cards – e.g. MBNA and Virgin Money, Existing Barclaycard balances to a new Barclaycard and no transfers between First Direct/HSBC/M&S/John Lewis credit cards as they are all part of the same group.
- Find out if you are eligible for the card WITHOUT a footprint being made on your credit record – Moneysaving Expert offers the pre eligibility function on its website to help you do this.
Also some providers allow you to make a soft search as part of the initial application, including Fluid, Nationwide Building Society and MBNA.
It’s better to know this upfront rather than go through a 20/30 minute application process which is registered on your credit record, only to find that your application is declined.
- Ensure you make your balance transfer(s) within the limited timescale permitted – some card providers request that balance transfers are made within 60 to 90 days of the date your card account is opened.
- Don’t give your card provider an excuse to cancel your 0% rate – set up a direct debit to make the minimum payment each month (you are free to make extra payments on top of this) – otherwise if you’re late with a payment or exceed your credit limit your interest free deal will be terminated immediately and you’ll be back to square one.
- Three key reasons close down your old card account(s)
- Removes the temptation to run up balances on the card(s) in the future
- Cards with a zero balance will still be taken into account on your credit record as the credit limit on each card is considered as borrowing available for you to use.
- If you just destroy the card without closing the account, there is a security risk. If you move home and forget to advise the credit card company – at the expiry date the new card would be posted to your old address.
- Keep tabs on your new card balance and make a diary note for 2 months before your 0% deal expires – this gives you time to switch again if you know the balance isn’t going to be fully repaid by the time your promotional rate comes to an end.