As much of the nation heads back to work this week, one of the biggest worries for many seems to be managing the debt hangover from the festive period.

With a staggering 60% of Brits paying for Christmas on the plastic this year, and some entering the New Year with debts of over £5,000 in unsecured loans, it is a trying time for many as they battle to clear down debts.

With pay rises unlikely to keep up with hikes in living costs, over half of consumers expect to take a year or more to pay off their credit card debt. Fifteen per cent say it may take as long as three years to settle their balance.

One option is to transfer the balance from one card to another with a better interest rate. For some, this is a good way to consolidate multiple debts into one and lower monthly outgoings.

Breathing space

Over the past few months, lenders have become increasingly competitive in the rates they offer to transfer balances on to their credit cards.

Michael Ossei, personal finance expert at uSwitch.com, says: “Balance transfer cards can be a good choice for those struggling to clear their debt, offering more breathing space to pay off their balance, without letting the debt spiral out of control.

“And for those who are able to pay back their debt within two years, there are an even greater range of cards to choose from.

“But because balance transfer deals are so sought after, lenders can be choosy. You are more likely to qualify if you have a squeaky clean credit rating and a minimum household income of £20,000.”

Most balance transfer cards are reserved for new customers and require you to shift your balance over within the first few months of getting the new card.

Kevin Mountford, head of banking at MoneySupermarket.com says: “A balance transfer card is a useful tool for anyone looking to transfer existing debts, allowing them to pay no, or a low rate of interest on existing debt- a significant saving if someone is transferring debt from a card at a typical rate of around 19% APR.

“However, anyone borrowing on these cards should aim to pay off the balance in full before the end of the promotional period; otherwise the rate will revert to the standard rate.

“It is also worth setting up a direct debit for at least the minimum repayment amount every month, as missing or being late with a payment will result in losing the promotional rate.”

Dangers

Balance transfer cards do seem to give those looking for that little extra time exactly that, but there are, as with any many financial products, plenty of caveats.

Nick Hill from the Money Advice Service (MAS) warns that as much as balance transfers can help to manage debts, they should not be used to accrue more debt.

“Unless you can pay the minimum payments every month, there’s actually no point in moving it because there will be fines for missing payments.

“The danger is that you might treat the new card as just an excuse to access more debt, but the card you are transferring to might not be the most efficient card to put purchases on. You’ve got to watch out for that.”

Remember, the aim of transferring a balance is to clear existing debts and not to accrue more debt in the meantime.

According to MAS, other things to watch out for are things like providers looking to make money through hiring highly trained sales people to sell you additional products that you may not need, such as insurance. This will add to your outgoings, so you should only buy what you actually need to manage your debt.

Take note of the amount you are allowed to transfer in. If the limit is say – £10,000, and you transfer in the full amount – you are likely to incur a fine as you probably have not calculated in the transfer fee. 

This transfer fee will push you over the limit of £10,000, and will therefore incur a fine. Check before you transfer in any balances that you are not exceeding the transfer limit when you add in the transfer fee.

Applying for numerous balance transfer cards will also negatively affect your credit rating, as multiple applications often look like you have been rejected by various providers and are a higher risk.

If you’re thinking about trying to use a credit card balance for the longest period you can, to stave off having to pay it now when things may be a little tight, look out for cards that have the longest period with 0% interest on balance transfers and a low transfer fee.

When you are shopping around, make sure you approach smaller providers or those not currently advertising. They often have great deals but may not be promoting at the time you are looking for a good deal.

Shrewd consumers can also get away with using an existing card to buy big purchases like a summer holiday or that new kitchen appliance, and then transfer the balance to a 0% card.

This allows you to get up to two years without having to pay for the purchase with very little interest on top.

Most card providers rely on a certain number of people failing to pay the balance off before the 0% deal expires. Remember, if you miss minimum payments you also forfeit the deal and start accruing interest at the normal rate.

Five key things to watch out for…