5 things you should know before transferring credit card debt

But before you begin your search for a new credit card, take a look at these five things you need to know...

10:20 31 March 2013

Competition among credit card providers has become fiercer over recent months as they fight to offer lengthier 0% balance transfer deals, making it even easier for consumers to get rid of their existing credit card debt.

 

But if you snapped up one of these when the deals got really good a couple of years ago, your interest-free window may be soon coming to an end. And if you haven't managed to pay off your debt in full, you'll need to shift that debt to another 0% balance transfer card as soon as your current deal ends.

But before you begin your search for a new credit card, take a look at these five things you need to know...

 

• You can't transfer your balance to a card with the same provider

 

The first thing you should know is that you can't move your existing card debt to a card from the same provider. This means that if you took out a Barclaycard balance transfer deal last time, you won't be able to move your debt over to another card from Barclaycard - such as its Platinum Credit Card with Extended Balance Transfer which offers 26 months at 0%, with a 3.5% transfer fee.

However, thanks to increasing competition, there are now a number of alternatives to consider. Tesco Bank, for example, has just increased the 0% balance transfer period on its credit card to 25 months. It comes with a 2.9% fee. The Halifax Balance Transfer credit card also offers an interest-free period for 25 months on balance transfers, with a slightly higher fee of 3%.

 

• You won't automatically qualify for the best deals

 

When you're browsing the best-buy tables, be aware that the balance transfer credit cards with the longest 0% deals will only be available to those of you with an excellent credit rating. If your credit rating isn't up to scratch, your application will be turned down   If this happens, resist the temptation to keep applying for other cards - if you do, lenders may think you're overstretching yourself financially and will be even more reluctant to give you credit. Instead, use our SmartSearch facility where you can compare a range of credit cards and get an indication of your chances of acceptance for each without leaving a footprint on your credit file.   You can easily get hold of your credit report from one of the credit reference agencies which you can compare at our credit reporting channel.

 

• Not all credit cards have a transfer fee

 

Transfer fees can work out to be pretty costly. For example, if you were to transfer a debt of £5,000 over to Barclaycard's 26-month card which has a 3.5% fee, you would pay a hefty £175.

If you have a lot of debt to shift, you may therefore prefer to consider a balance transfer card that has no transfer fee. But in return for not paying one, you will have to pay interest - albeit at a fairly low rate.

For example, NatWest's Visa Low Rate Credit Card charges no fee for balance transfers and has an interest rate of just 2.9% for 12 months. After that, the representative APR of 9.9% (variable) kicks in.

Alternatively, the Sainsbury's Low Rate Credit Card has no fee attached and offers a rate of 6.95% for the life of the debt. This means there's no deadline by which you need to have paid off your debt in full before you're hit with a higher interest rate.

 

• The 0% purchase offer isn't always a good thing

 

Many 0% balance transfer credit cards also offer an interest-free purchase period. For example, the Barclaycard Platinum Credit Card with Extended Balance Transfer offers a 0% purchase period for six months, while both Halifax and Tesco's balance transfer offerings come with a 0% purchase period of three months.

But try not to be too enticed by these offers. A balance transfer credit card should be viewed as a tool to clear your debt, not encourage you to rack up more. Spending on your balance transfer card could result in you losing track of how much debt you've got and undo all the progress you've made chipping away at it.

 

Spending on your balance transfer card could result in you losing track of how much debt you've got and undo all the progress you've made chipping away at it. What's more, you will typically pay interest on any purchases made on the card (outside any 0% window on purchases) even if you pay off the cost of them at the end of the month. This is because all of your payments will go towards your existing balance transfer debt - not your new purchases debt - until you have paid off your balance in full. So, as a general rule, don't spend on your balance transfer card.

 

• Miss a payment and you could lose your 0% offer

 

Once you have chosen your balance transfer credit card, it's a good idea to set up a monthly direct debit to ensure you never miss a payment. If you fail to make a payment one month, or even if you are late making it, your card provider could take your 0% deal away from you and you'll have to start paying interest on your debt. Not only that, but missing a payment could also affect your credit rating.

If you can afford to, try to pay off more than the minimum monthly repayment each month so that you'll clear your debt more quickly and you're less likely to have to move your debt to another card once your 0% periods ends.

 

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.