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Why now is a good time to credit card balance transfer to clear debt

For those who use credit cards to manage their debts, balance transfer cards have long provided a way to cut down on costly interest payments by putting everything in one place. 

But the increased popularity of these cards means the deals available at the moment are better than ever.  

The credit agency, Experian has recorded a 27 per cent rise in the number of people applying for a balance transfer card between September and November this year, compared to the same period in 2019.

For those heading into 2022 with credit card debts hanging over them, the costs of extortionate interest payments can really begin to mount up

A balance transfer credit card allows people to pay off debts by transferring everything they owe over to a new card. 

This means they pay interest on one account rather than several, but balance transfer cards also often come with the promise of 0 per cent interest for a fixed period of time.  

The Money Charity estimates that each UK household has an average credit card debt of around £2,058, whilst Moneyfacts states that the average credit card APR currently stands at 26.2 per cent.  

This means a customer with a £2,058 balance, paying the minimum monthly payment of 3 per cent (£61) with the average APR of 26.2 per cent could save £1,341 over 34 months by transferring the balance across to a 0 per cent credit card, even after including a 2.5 per cent (£51.45) balance transfer fee.  

The temptation to shift debt using a balance transfer credit card will be all the more tempting with interest free deals looking lengthier and cheaper at the moment. 

The average interest free period on a balance transfer credit card has risen to the highest level in over three years, whilst the average balance transfer fee has also fallen to the lowest level since October 2006, according to Moneyfacts.

The average 0 per cent balance transfer term on credit cards has risen to 577 days, up from 548 days in September, and up from 520 days a year ago.

This means the average interest free period for balance transfer credit cards is the lengthiest it has been since November 2018. 

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

Furthermore, the fees charged when transferring debt over to one of these credit cards is also falling according to Moneyfacts.

The average balance transfer fee has fallen from 2.22 to 1.96 per cent over the past year alone, meaning it is now the lowest recorded since October 2006.

Moneyfacts data also revealed there are now 68 balance transfer credit card deals available, which is the highest amount recorded in 2021.

Rachel Springall, finance expert at Moneyfacts, said: ‘In the run-up to the festive season it seems credit card providers have made overhauls to their interest-free balance transfer offers.

‘This could well be perfectly timed for borrowers looking to consolidate their debts and have more time to pay off their balance without incurring interest.

Taking control of expensive card debt with a balance transfer and using the 0 per cent period to clear or at least reduce your debt could reduce costs and show responsible use of credit.

Taking control of expensive card debt with a balance transfer and using the 0 per cent period to clear or at least reduce your debt could reduce costs and show responsible use of credit.

‘0 per cent introductory balance transfer terms have lengthened, associated fees to transfer have fallen and there is more choice.

‘As we head towards 2022, consumers would be wise to take time to compare offers now, especially if they are looking to consolidate debts.’

However, 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.

Over the course of the last three months, the average purchase APR’s on credit cards has also risen, according to Moneyfacts, with the average APR now 26.2 per cent. 

For example, over the past three months, Tesco’s credit card customers saw an increase from 20.9 per cent to 21.9 per cent on its Low Fee Balance Transfer Clubcard Mastercard. 

What are the best balance transfer deals?

For those seeking out the longest interest free period possible, then Virgin Money’s 35 Month Balance Transfer Card for any transfers made within 60 days, making it the lengthiest deal on the market.

However, it does come with 2.94 per cent fee which means you may be able to find cheaper options if you are prepared to compromise on the length of the o per cent period. 

Santander’s Everyday Long Term Balance Transfer Credit Card may also be an option.

The card offers an interest free period of up to 31 months, subject to eligibility, with a 2.75 per cent balance transfer fee.

A marginally cheaper alternative could be Sainsbury’s Bank 30 month Balance transfer credit card which offers a 0 per cent interest on balance transfers for up to 30 months subject to eligibility.

Sainsbury’s card charges a balance transfer fee of 1.5 per cent, which applies to transfers made at application.

However, the lengthiest term may not be the wisest option, given the fees involved.

Keith Kilcourse, credit and loans publisher at the comparison site, finder said: ‘Balance transfer deals that don’t come with a transfer fee attached should always be your first port of call.

Most credit card providers now run a soft credit search (which has no impact on your credit score) to help you get an idea what your personalised deal would look like.

Most credit card providers now run a soft credit search (which has no impact on your credit score) to help you get an idea what your personalised deal would look like.

‘There’s no point simply opting for the longest 0 per cent deal if a slightly shorter deal with no transfer fee would give you long enough to clear your debt.

‘Divide your outstanding balance by the amount you can reasonably afford to repay each month to get an idea roughly how many months you’d need at 0 per cent interest to get debt-free.’

For those looking for the longest interest free period without a transfer fee, Sainsbury’s Bank 21 month Balance transfer credit card offers a 0 per cent balance transfer period of up to 21 months with no fee for transferring.

Is a balance transfer card right for you?

If you’re able to clear your debts within a couple of months, then a balance transfer card may not be the best option.

Balance transfer cards rarely come with any additional perks such as cashback or rewards, for example.

If you’re looking for a credit card that will reward your everyday spending or give you points to put towards your next flight, for example, then you may prefer to read our recent round up of the best credit cards.

However, for those with a large amount of credit card debt, a balance transfer deal could be a no brainer.

You can usually transfer up to 90 or 95 per cent of your new card’s credit limit, which will limit the amount of debt you can consolidate, but it could still be worthwhile in any case.

‘If the highest limit you can get is not high enough to cover the transfer, it may still make sense to transfer as much as you’re allowed to the new, cheaper deal,’ says Kilcourse.

‘Then focus on clearing the remaining expensive debt first, while making at least the minimum monthly repayment on your new card. 

‘In theory it’s possible to take out more than one balance transfer deal, but getting approved may be a challenge, and multiple applications for credit in a short space of time can damage your credit score and be a red flag to future would-be lenders.’

Will you need a good credit score to get one?

Your credit score will likely determine the balance transfer deals you are eligible for.

Without a very good credit score, card issuers may still approve you but offer a shorter 0 per cent deal.

It may be that you have a poor credit rating and are therefore not eligible for deals offered by mainstream providers.  

Kilcourse adds: ‘There is still some hope for poorer credit scores but beware – after the 0 per cent rate ends it will become expensive.

‘Those with low credit scores may be able to get approved for three to nine month interest-free offers.’  

Examples of these include, Vanquis Bank which offers 0 per cent for six months and a 2.9 per cent transfer fee and Fluid which offers a 9 month term and a 4 per cent transfer fee.

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