BLOG: Why you should switch to an interest-free credit card now
January has always been a bumper month for balance transfer credit cards. TotallyMoney research shows that over the past four years, £6bn of credit card debt has been switched in January alone.
Why? Well, a combination of Christmas debt hangovers and a desire to organise finances for the New Year traditionally prompts people to sort their money out. For many, addressing their debt is a top priority.
How do 0% balance transfer cards work?
A 0% balance transfer credit card offers a certain number of months to pay off credit card debts interest-free. During this time, 100% of repayments go towards paying off what you owe (unless you incur fees for going over your limit or missing payments). This lets savvy borrowers shrink their debts faster.
Historically, balance transfer cards have been a booming business for lenders. Intense competition meant table-topping deals were routinely toppled by even longer 0% periods.
Two years ago, you could transfer an existing credit card debt to a balance transfer card that waived interest for a whopping 43 months. And this time last year there were 10 major credit card providers offering 0% interest periods of 40 months or more.
The party’s over
But borrowers looking to make the switch this January might be in for a shock. The glory days appear to be behind us — providers are slowly but surely falling out of love with ultra-long deals.
The longest 0% balance transfer deal currently available is just 32 months. You can get this from either HSBC or Post Office Money.
It’s a far cry from the heady days of 43 months interest-free. If this downward trend continues, borrowers looking to organise debt later in the year could struggle to find deals longer than 30 months.
Switch now for the best savings
If you’re currently paying interest on your credit card debt, my advice is to switch to a 0% deal now, before the market declines further.
But do your research before you switch. As well as checking the length of any 0% interest deal you’re offered, check the balance transfer fee too. This fee is usually a percentage of the debt you’re transferring and will reduce the amount of cash you save when you switch. Not all balance transfer cards charge a fee, though, but might offer a shorter offer time instead. It’s worth shopping around.
It’s also a good idea to check your credit score before you apply for a new credit card. The best deals will only be available to people with good credit histories. If your credit rating needs improving, you might only be accepted for shorter balance transfer offers. You should always check your eligibility before you apply, to see how likely you are to be accepted.
Once you’ve been accepted for a new balance transfer card, use it wisely. This means absolutely no spending on the card (or on any other credit card if you can help it), and setting up a direct debit to pay off a chunk each month. This is important. If you miss payments or go over your credit limit, you could have the transfer offer revoked, which means you’ll start paying interest on your balance straightaway.
Alastair Douglas is CEO of TotallyMoney