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Why NOW is the time to transfer credit card debt
Let's take a look at what's on offer in the new and improved balance transfer credit card market.
08:44 30 May 2013
If you have credit card debt, then now is the perfect time to transfer it to a 0% shelter, as Barclaycard has brought out the big guns in a bid to win the battle of the balance transfers.
No sooner had NatWest and RBS announced a 26-month interest-free balance transfer period, than Barclaycard blew them out of the water with a 27-month 0% offer.
However, just because a credit card comes with a longer balance transfer period, this doesn't automatically mean it's the right one for you; you'll also need to factor in the balance transfer fee and maybe even the size of the representative annual percentage rate (APR) once the 0% term ends, on the off chance you have not cleared the balance by then. So let's take a look at what's on offer in the new and improved balance transfer credit card market.
The best long interest-free periods
Barclaycard now offers the longest interest-free balance transfer period on the market - its Platinum Credit Card with Extended Balance Transfer gives customers a whopping 27 months in which to pay off the balance before incurring a penny in interest charges.
Next in line are the new NatWest and RBS Platinum cards which offer 26 months at 0%, which you can read more about in Laura Howard's article.
Virgin Money has also just hiked the balance transfer period on its credit card from 20 months to 26months. And because the card is provided by MBNA, it offers a great alternative for anyone looking to transfer debt from a Barclaycard, NatWest or RBS credit card (you won't be able to transfer debt from an existing MBNA or Virgin card).
As an added incentive, the Virgin Balance Transfer Credit Card also offers discounts on services such as Virgin holidays and Virgin Experiences. You can read more about the deal with Rachel Wait's Focus On.
Close behind is the Barclaycard Platinum Credit Card with Balance Transfer, the Halifax Balance Transfer Credit Card and Tesco's Clubcard Credit Card for Balance Transfers, all of which offer 25-month interest-free periods.
So, given that there are plenty of balance transfer cards on the market that will give you over two years to pay down your debt, how do you work out which is the best one for you? A good place to start is to look at the size of the balance transfer fee...
Factor in the fee
When a credit card company offers a lengthy interest-free period on balance transfers, it will try to claw some money back in the form of a balance transfer fee so it's vital that you factor in this charge. And, the fee is calculated as a percentage of the debt, this is particularly the case if you have a large balance to transfer.
For instance, although the Barclaycard has the headline-grabbing interest-free period of 27 months, its 3.5% balance transfer fee is one of the highest on the market. If you have a balance of £3,000 to transfer, you'll have to pay £105 to take advantage of the long period of interest-free repayments.
If, however, you choose to transfer to the NatWest or the RBS Platinum card, the fees on both of these is much lower at 2.65%, which means you'll have to stump up just £79.50. On the downside, you'll have a month less in which to clear your debt before the interest fees kick in.
If you're prepared to sacrifice two months' worth of interest-free payments, the Barclaycard Platinum Credit Card with Balance Transfer offers the lowest fee in this bracket at just 2.4%. So you'll have to pay £72 to transfer the same £3,000 balance.
Alternatively, both the Halifax Online All In One card and the Lloyds TSB Platinum Credit Card come with balance transfer fees of 1%, meaning it'll cost you just £30 to shift your £3,000 balance. But both these cards come with a much shorter interest-free period of 15 months, at which point the representative APR jumps to 17.9%, so you'll have to make sure you do your sums before you apply.
On the other hand, if you need less than 15 months to clear the debt and don't mind paying a relatively low interest rate on it, you could waive the transfer fee altogether.
Low rate cards
This is because, instead of coming with an interest-free period, some credit cards simply offer one low rate that will either last for the life of the balance or the life of the credit card - and the best thing is that these cards often do away with the balance transfer fee altogether.
For instance, both the Sainsbury's Nectar Low Rate Credit Card and the Sainsbury's Cashback Low Rate Credit Card come with a representative APR of just 7.84% (variable) on balance transfers and do not charge a balance transfer fee.
Alternatively, the Barclaycard Platinum Simplicity card comes with a 7.9% representative APR (variable) while the NatWest Visa Low Rate Credit Card offers 12 months at just 2.9% interest before it jumps to a representative APR of 9.9% (also both variable). Both cards offer fee-free balance transfers.
Bear in mind that whichever balance transfer card you choose, you won't be able to switch debt between cards from the same provider or group of providers. So for example, if you have debt on a Barclaycard already you won't be able to take advantage of the 27-month offer.
What happens when the 0% term ends?
With these low rate credit cards, the quoted APR (or thereabouts if it's variable) will apply to your balance until it is cleared. But with a 0% balance transfer deal, you'll have to consider what happens when the term ends and you start paying interest on your remaining balance.
Most of the credit cards that offer balance transfer periods of 25 months and above come with representative APRs of 18.9% once this interest-free period ends, while the representative APR on the Tesco Clubcard Credit Card for Balance Transfers is a lower, but still-punishing, 16.9%.
The key is to pick a 0% balance transfer deal long enough in which to repay your debt, while balancing up the fee.
It's also worth noting that, while balance transfer cards can also come with shorter interest-free offers on purchases (say three or six months), they should first and foremost be used for getting rid of debt. Avoiding spending on the cards and clearing your balance within the stated 0% period is the only way to avoid these high APRs altogether.
At a glance...
|
Card |
0% term (months) |
Transfer fee |
Cost of transferring £3,000 balance |
Representative APR when 0% term ends |
|
Barclaycard Platinum Credit Card with Extended Balance Transfer |
27 |
3.50% |
£105.00 |
18.9% |
|
26 |
2.65% |
£79.50 |
18.9% |
|
|
26 |
2.65% |
£79.50 |
18.9% |
|
|
26 |
2.99% |
£89.70 |
17.9% |
|
|
25 |
2.40% |
£72.00 |
18.9% |
|
|
25 |
2.50% |
£75.00 |
18.9% |
|
|
25 |
2.90% |
£87.00 |
16.9% |
|
|
24 |
2.89% |
£86.70 |
16.9% |