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By Julia Kukiewicz
Staff Writer
Monday, 15 December 2008
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YES, we know Christmas isn’t even over yet but there’s no getting away from it: this is the right time of year to make a change and the right year to make that change affect your bank balance.
We’re talking credit card debt, of course.
Overspending – even just ‘spending’ - at Christmas and New Year leads inevitably to the traditional January financial hangover. It’s like a normal hangover but instead of a thudding headache there’s just a thud as your bill hits the doormat.
In the past few weeks, we’ve seen applications for credit cards offering 0% interest on purchases rise so it seems that some consumers are already taking steps to prevent manage their post-Christmas credit.
But what do you do if you’ve already got a credit card debt or your 0% deal is going to run out before you can pay it off?
Introducing: the balance transfer credit card. Use these credit cards to eliminate or reduce the interest you pay on your debts.
There will be a few weeks between your application and being able to use your credit card so it’s worth applying now if you want to ease the burden of that first post-Christmas bill.
Read on to find out how these credit cards work, how to avoid the pitfalls and compare the best deals on balance transfer credit cards.
0% or Life of Balance?
Balance transfer credit cards work by allowing you to pay off your credit card debts without the 17% or so interest that you would incur on a normal credit card.
There are two types of balance transfer credit cards: 0% balance transfer credit cards and 'life of balance' balance transfer credit cards.
0% balance transfer credit cards offer a limited time during which you don’t have to pay any interest on your debt.
They’re good if you are prepared to change credit cards frequently and are very organized with your money or if you have a small credit card debt that you can definitely pay off during the limited period.
 Compare 0% balance transfer credit cards here
Life of balance credit cards offer a lower rate of interest – usually around 5% - that you pay on your debt every month until its paid off.
These are suitable if you don’t want to change credit cards frequently but you’re still serious about reducing your credit card debt.
Compare life of balance credit cards here
The Pitfalls
Credit card companies aren’t dishing out balance transfer credit cards out of the goodness of their hearts: they’re trying to make money.
They do this in three ways:
- First, they charge a fee for transferring your balance;
- Second, they hope that you won’t pay off the debt; and
- Third, they hope that you’ll use the credit card in the wrong way!
Balance transfer fees are fairly straightforward – when you move your debt onto the new card you are charged a percentage for doing so, usually around three percent.
Don’t panic about this: the fee will be more than balanced out by the money you’ll save in interest.
The second point means that if you just make the minimum repayments or – in the case of 0% credit cards – you fail to clear your debt while interest is low then you’re back where you started, with your credit card company getting all your money.
This also applies to using your credit card in the wrong way. Try to avoid using your balance transfer card for anything else and if you do read the small print to avoid extra fees or interest payments.
Finally, its worth considering that we are now in a recession.
Less credit card applications are being accepted and there are fewer 0% deals out there.
If you’re having trouble finding a 0% balance transfer credit card that you are eligible for then you might find it difficult or impossible to switch later on so consider getting a life of balance transfer credit card instead.
The Best Balance Transfer Credit Cards
The longest 0% balance transfer deal currently on the market is from Virgin Money who is offering an incredible 16 months interest free.
Another good 0% deal is the Post Office credit card, currently offering 12 months at 0% and then another 5 months interest free in 2010 or 2011 making this a good long-term credit card.
To compare the best deal on life of balance transfer credit cards first try looking at Barclaycard’s Platinum credit card. It offers a rate of 6.5% interest for balances under £5000 and 6.9% for those over £5000.
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