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Best balance transfer credit cards to help you clear your debts

As Britain becomes further entangled in the cost of living crisis and braces for even higher inflation, those with credit card debts could be feeling the strain.

Household credit card borrowing rose to its highest level in more than 16 years in April, suggesting more Britons are turning to debt to cope under the current circumstances.

One potential avenue of respite for those struggling to cope are balance transfer credit cards.

Balance transfer cards can help people who are unable to repay their credit card debt each month save up £100s or £1000s in interest

Balance transfer cards have long provided a way to cut down on costly interest payments by transferring the debt over to a new card, often with the promise of 0 per cent interest for a fixed period of time. 

At the moment, on average, balance transfer deals are offering the longest period of 0 per cent interest in more than four years as lenders compete against each other. 

As long as borrowers keep up with payments and stick by conditions they can use these cards to clear debts with no interest, instead of typical credit card rates of 25 to 30 per cent interest.

The Money Charity estimates that each household has an average credit card debt of around £2,173, while Moneyfacts says the average credit card APR currently stands at 26.7 per cent.

This means someone with £2,173 credit card balance charged 26.7 per cent APR, making a £65 fixed repayment each month would end up being charged £1,439 in interest. 

However, using 0 per cent balance transfer card that charges a 2.5 per cent fee on a debt of £2,173 would only cost £54.33. 

Balance Transfer credit cards can help people manage their finances by allowing them to consolidate debts and save money on existing card balances

Balance Transfer credit cards can help people manage their finances by allowing them to consolidate debts and save money on existing card balances

Someone looking to pay off debt over a 12 month period could also make a considerable saving, given that may also be able to transfer without even having to pay a balance transfer fee when doing so.

For example, someone attempting to clear £4,000 of credit card debt over 12 months incurring a typical APR of 26.7 per cent could save themselves £537 in interest by transferring to a balance transfer deal instead.

That said, it’s important to reiterate that hopping from one balance transfer card to another shouldn’t be used as a long-term debt strategy or an excuse for allowing debt to pile up.

Those who do transfer money across to one of these cards will need to make sure they pay it off in time or potentially risk facing higher interest rates.

It’s also worth considering how likely they are to be accepted for the card before applying, as being turned down or making too many applications could impact their credit score (see ‘Will you be accepted for a balance transfer credit card’ below).

Rachel Springall, personal finance expert at Moneyfacts said: ‘Countless borrowers could well be relying on credit cards to make ends meet as the cost of living continues to rise.

‘Those with debts should never assume that they can always hop from one lengthy interest-free deal to another with ease and its vital borrowers strive to carefully manage debts before it becomes overwhelming and seek advice if they struggle to keep up with repayments.’

What deals are available?

Although the number of balance transfer deals remains lower than prior to the pandemic, the 68 currently available are offering on average the longest terms seen in more than four years.

The average 0 per cent balance transfer term on credit cards has risen to 613 days, up from 550 days this time last year and the highest average recorded since May 2018, according to Moneyfacts.

The fees charged when transferring debt over to one of these credit cards has also been gradually falling, although it has remained broadly flat since the start of the year.

For those with credit card debts hanging over them, the costs of extortionate interest payments can really begin to mount up.

For those with credit card debts hanging over them, the costs of extortionate interest payments can really begin to mount up.

The average balance transfer fee is now 1.95 per cent, down from 2.12 per cent a year ago.

This is the lowest recorded average since October 2006, according to Moneyfacts, when it was 1.82 per cent.

The most cost effective balance transfer cards are those that come with no transfer fee attached – albeit you’ll have to sacrifice a little on the length of the term.

Springall says: ‘Moving debts using a lengthy 0 per cent balance transfer card is a wise move to avoid fees charged on an interest bearing card, but the longest deals may not be the best choice.

‘If a borrower can pay off their debts within a year or so they will find a few cards that do not charge a balance transfer fee upfront.

‘In fact, those borrowers choosing a fee-free card instead could avoid paying any interest if they set aside a big enough fixed repayment, but they will need to plan carefully to ensure they pay off their debt before any 0 per cent offer ends.’

The balance transfer deal with the longest 0 per cent period, which has no fee attached is Sainsbury’s Bank 22 month Balance transfer credit card.

Although it’s worth noting that Sainsbury’s may offer you a 0 per cent interest period of 14 months instead of 22, depending on your individual circumstances.

A balance transfer fee of either 0 per cent or 1 per cent will apply to transfers made within the first 3 months, so it may not be entirely free.

The average 0 per cent balance transfer term on credit cards has risen to 613 days, up from 550 days this time last year and the highest average recorded since May 2018.

The average 0 per cent balance transfer term on credit cards has risen to 613 days, up from 550 days this time last year and the highest average recorded since May 2018. 

Cardholders will also collect 500 bonus points each time you spend £35 or more on Sainsbury’s shopping with their credit card, up to ten times in your first 2 months, that’s 5,000 points.

One Nectar point is worth 0.5p, so this could potentially be worth £25. 

Natwest and RBS are also offering a 22 month 0 per cent deal with no fee, but you’ll need to have an existing savings, credit card, mortgage or current account with either bank to be eligible.

One other option is Santander’s Everyday No Balance Transfer Fee Credit Card.

It offers 0 per cent interest on balance transfers for 21 months from the account opening and no fee to transfer a balance for the first 21 months either. 

For those seeking out the longest interest free period possible, Santander’s Everyday Long Term Balance Transfer Credit Card is one of the lengthiest deals on the market.

Do you need to clear existing debt?

Before you think about signing up for a new card to use for spending, you should make sure that your existing debts are in order. 

If you’ve racked up a load of debt and have decided to make a fresh start on tackling it, zero per cent balance transfer cards could be the way to go.

Moving your debt to an interest-free card means that you can freeze the size of your debt, rather than continually playing catch-up as interest piles up.

Make sure you stick to the rules and clear your debt within the time period, otherwise you could be hit with high interest rates. 

The reason credit card firms offer interest-free periods is because they manage to catch so many people out. 

The card offers an interest free period of up to 33 months, subject to eligibility, with a 2.65 per cent balance transfer fee.

Santander is also advertising the fact you can currently get 1 per cent cashback on purchases when using your card abroad.

However, be wary of falling for this trap. The card will also hit you with a non-sterling transaction fee of 2.95 per cent on all purchases.

The HSBC Balance Transfer Credit Card is also an option for those requiring the maximum time in which to repay their debts.

It offers 33 months interest free for balance transfers made within the first 60 days of holding the card.

A 2.7 per cent fee applies per balance transferred, with a minimum charge of £5, so worth transferring debts across in the largest sums possible.

It’s also worth noting that once the 33 month interest free period is over, you will face a 21.9 per cent APR.

Perhaps a better solution – giving holders a heathy 0 per cent period and a lower fee is Sainsbury’s 29 month balance transfer credit card.

It offers a 0 per cent interest on balance transfers for up to 29 months. Although it may offer you a 0 per cent interest period of 21 months depending on your individual circumstances.

A balance transfer fee of 1 or 2 per cent applies to transfers made at application, depending on your individual circumstances (£3 minimum). The charge will depend on your current offer thereafter.

You can also collect 500 bonus Nectar points each time you spend £35 or more on Sainsbury’s shopping with your credit card, up to ten times in your first two months. That’s a total of 5,000 points.

One Nectar point is worth 0.5p, so this could potentially be worth £25.

Will you be accepted for a balance transfer credit card?  

Being approved for a balance transfer card is by no means guaranteed.

In theory, those with the best credit ratings are the most likely to be approved for a card as they will have a history of paying off debt on time. 

It is more likely that those with poor credit ratings will be rejected, or be given less attractive terms such as a higher interest rate or shorter interest-free period.

Those who are refused should bear in mind that applying for a number of other balance transfer cards in a short space of time will worsen their credit rating.

Many card providers will not allow you to transfer balances from another of their own products, so you should identify the best deal for you outside of your existing provider before making an application.

Some providers may only accept your application if you already hold a current account with them.

There are other restrictions such as having a minimum level of income – generally between £10,000 and £20,000.

To take advantage of introductory 0 per cent offers, you may have to transfer your balance within a specified time frame. 

Most credit card providers increase handling fees after the first 60 or 90 days.

THIS IS MONEY’S FIVE OF THE BEST CURRENT ACCOUNTS

Lloyds Bank’s Club Lloyds account will pay £125 when you switch. There is a £3 monthly fee but this is waived if you pay in at least £1,500 each month. You also earn monthly credit interest on balances up to £5,000 and can choose a reward each year, including 6 cinema tickets.

Santander

Virgin Money’s M Plus Account offers £20,000 Virgin Points to spend via Virgin Red when you switch and pays 2.02 per cent monthly interest on up to £1,000. To get the bonus, £1,000 must be paid into a linked easy-access account paying 1% interest and 2 direct debits transferred over.

Natwest

HSBC’s Advance Account pays £170 when you switch to the account. You need to set up two direct debits or standing orders and pay in at least £1,500 into the account within the first 60 days.

Santander

First Direct will give newcomers £150 when they switch their account. It also offers a £250 interest-free overdraft. Customers must pay in at least £1,000 within three months of opening the account.

Nationwide

Nationwide’s FlexDirect account comes with up to £125 cash incentive for new and existing customers. Plus 5% interest on up to £1,500 – the highest interest rate on any current account – if you pay in at least £1,000 each month, plus a fee-free overdraft. Both the latter perks last for a year.

Barclays

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