January saw a bumper £1.62billion worth of credit card debt balance transfers, the highest figure since March 2006, according to new figures from UK Finance.
Interest-free credit card offers on balance transfer deals can be a useful tool if used sensibly.
By shifting debt from an existing card charging more than 20 per cent to a 0 per cent interest deal, monthly repayments go towards paying down the balance instead of interest – clearing debts more quickly – although you must typically pay a fee to get them.
On ice: Balance transfer credit cards allow borrowers to shift debt to a 0% interest deal for a small fee
Last month as many as 679,000 balance transfers were made in the UK, at an average £2,382.
But while demand for interest-free cards is showing no signs of slowing, banks are putting the squeeze on their interest-free credit card offers.
A whopping 44 per cent of credit card debt is sitting on interest-free credit card deals – both 0 per cent purchase and balance transfer cards.
This equates to a bumper balance of £29.4billion, according to figures from UK Finance.
The slow demise of 0% deals
A year ago borrowers could choose from 11 different credit cards offering O per cent interest deals on balance transfers lasting for 40 months or more, according to research by Andrew Hagger of Moneycomms.co.uk.
This time last year, both MBNA and Halifax offered 0 per cent deals of up to 43 months – the longest ever offered.
This compares to top deals lasting 37 months from MBNA (1.89 per cent handling fee) and Nuba (1.98 per cent handling fee) now.
The duration of 0 per cent interest deals could fall further, according to Hagger.
He explains: ‘Credit card companies are tightening their credit criteria and the appetite to be top of the long-term best buys has faded dramatically.
‘With inflation still stubbornly around the 3 per cent mark and further interest rate rises predicted, it’s highly likely that the best buy 0 per cent durations will continue to dwindle in the coming weeks and months as lenders become more concerned with customer affordability.
‘There are some excellent card deals still available if you have a good credit rating, but if you’re looking for a long-term switch (37 months 0 per cent) or a long-term low rate card such as MBNA 4.9 per cent APR for five years, don’t hang around as such stand out deals won’t be around for much longer.’
The rules for balance transfers
By shifting debt to these cards for a small fee – typically between 2 and 4 per cent – borrowers can spread the cost of repayments over an extended period without being charged interest on their borrowing.
While these cards come with some major health warnings, if used sensibly they can make it quicker and cheaper to clear a balance.
Three golden rules.
- Work out how much you need to repay each month to clear the whole balance before the deal ends and set up a direct debit. After the 0 per cent promotion ends your balance will incur interest at an eye-watering rate – typically 18 or 19 per cent. It may also help to add a reminder to your calendar.
- Leave the card at home. If you add more debt to the card by spending it will make it harder to repay it in time.
- ALWAYS make sure you are at least paying off the minimum repayment. If not you will pay late fees of around £12. It will also leave a mark on your credit rating.
Completely free balance transfer deals
There are a handful of cards on the market that won’t charge a handling fee at all when shifting debt from another credit card to them.
They don’t offer the longest 0 per cent terms but, for those who are confident they can pay off their credit card debts in a shorter time frame, they can save money in fees.
Halifax tops the list with a no-fee balance transfer deal lasting 29 months as long as you shift the debt within the first 90 days, after that it costs 3 per cent. After the interest-free promotion ends you will pay 19.9 per cent.
TSB comes next with a 28-month balance transfer credit card which charges 0.5 per cent on transfers made within the first 90 days, but waives the fee altogether for any made within the first 30 days. After that it costs 3 per cent.
It also comes with three months interest free purchases and 1 per cent cashback on purchases if you also hold the TSB Classic Plus current account.
Sainsbury’s Bank has a 28-month balance transfer credit card which fully repays the 1.5 per cent transfer fee it charges within the first three months. After that you will pay 3 per cent.
The longest 0% interest cards
Below is our pick of the top balance transfer credit cards with extended 0 per cent periods.
Remember, if you don’t have a good credit rating you may not get accepted for one of the best deals as providers have the pick of the bunch when it comes to who to accept.
So it may be a better idea to run your own search or use a soft search tool like the one offered by our expert partner service MoneySupermarket.
This will use information from your credit score to work out which cards you are more likely to qualify, without leaving a mark on your score.
|Provider||Interest-free term on balance transfers||Interest-free term on purchases||Transfer fee||APR|
|MBNA||37 months||None||1.89%||19.9%||Transfers must be made within 60 days to qualify for the promotional deal. 20 months 0% money transfers (4% fee)|
|Nuba||37 months||None||1.98%||19.9%||Transfers must be made within 60 days to qualify for the promotional deal. 20 months 0% money transfers (4% fee)|
|Barclaycard||36 months||6 months||1.85%||19.9%||You will be charged a 3.5% handling fee initially but transfers within the first 60 days are eligible for a refund.|
|Halifax||36 months||3 months||2.5%||19.9%||3% fee applies unless transfers are made withing the first 90 days, when 0.5% refund applies|
|Tesco Bank||36 months||3 months||2.69%||18.9%||You must transfer a balance within the first 90 days to get the promotional offer and 2.69% fee. Also comes with 36 months’ 0% interest on money transfers (3.94% fee)|
|Sainsbury’s Bank||36 months||3 months||2.89%||18.9%||Initial fee is 2.89% with a 0.91% refund on handling fees if transfer is made within 3 months. After that it jumps to 3%. Collect 10,000 Nectar points on Sainsbury’s shopping in two months.|
|Virgin Money||35 months||3 months||2.8%||20.9%||Includes 20 months 0% interest on money transfers (2.5% fee). Require balance transfer to be made within 60 days.|
|Correct as of February 26 2018|
THIS IS MONEY’S FIVE OF THE BEST CREDIT CARDS