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By Neil Hawkins
Senior Staff Writer
21 August 2009
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Balance Transfer FAQ
Answers to the most popular questions on balance transfer credit cards:
Will a balance transfer credit card reduce my monthly repayments?
No. A 0% balance transfer will help reduce the amount of interest accrued each month. This is separate to your repayments. You should repay as much as you can every month to clear the debt.
What's the best 0% balance transfer credit card?
Virgin Credit Card - 0% for 16 months (2.98% fee
What's the best life of balance credit card?
Barclaycard Simplicity - 6.8% for life of balance (2.5% fee)
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SHIFTING debt to a 0% balance transfer credit card or a life-of-balance credit card can be the most effective way of reducing expensive interest payments on your monthly credit card bills.
A balance transfer is when you pay off an existing credit card balance with another credit card which has a special low interest rate specifically for balance transfers.
Moving debt from credit cards with high interest rates to one with a low interest rate can be a very effective way to save a lot of money on interest payments over the life of a balance.
Therefore, a balance transfer credit card can prove to be a very useful money tool - if used correctly - which is why here at Choose Towers we've decided to draw up this handy guide for you.
0% balance transfer vs. Low rate for life of balance
Assuming your credit score is good enough to apply for a new card (a 'good' credit rating is commonly required) there are two ways you can save cash.
The first is to take advantage of one of the many 0% balance transfer credit cards available.
These offer no interest on the balance transfer for a period typically between 3 and 15 months.
The second option is a 'life of balance' credit card which will give you a low interest rate for the life of the debt.
Which one is best for you?
If you think you can pay off your credit card debts within a year then you should opt for a 0% balance transfer credit card.
By shifting your existing debt onto a 0% card you will not have to pay any extra interest on the balance whilst paying it off.
There will be a fee to pay of around 3% when you transfer the money from your old credit card to the balance transfer credit card and this will accrue interest, so try and repay at least this amount in the first month if possible - this will remove any further interest accumulations.
Best 0% balance transfer credit cards
If you find that you can't pay your balance transfer off before the 0% balance transfer deal ends, shift the debt to another 0% card.
Remember that each time you transfer the balance you'll incur a fee of around 3%. It's also worth remembering that there are no guarantees that you'll be able to find another 0% balance transfer deal when your current deal ends.
With these points in mind, if you think you may end up moving your balance multiple times you will probably be better off with a cheap long term deal instead.
These 'life-of-balance' cards all offer cheap interest rates which lasts until the debt has been cleared, no time limits.
Cheapest long term balance transfer credit cards
Never, ever spend on these cards after transferring a balance, why? Read on...
Balance Transfer Credit Card Essentials!
For nearly all balance transfer credit cards there are two crucial rules, which you must stick to in order to benefit:
1. DO NOT, repeat, DO NOT, spend on the balance transfer credit card!
Firstly, you will always be paying off the cheapest debt first on a balance transfer credit card - it's all down to the 'allocation of payments' determined by the card company.
This means that until you have cleared the balance transfer, any purchases you make will get stuck behind it in the repayment queue, accumulating interest faster than Stephen Fry can on Twitter.
The only possible exception to this is if a card has a 0% balance transfer deal and a 0% purchases deal which both last for the same amount of time.
So, for example, if both 0% deals last for 12 months then you're fine but if there is a 12 month balance transfer deal and only 3 months at 0% interest for purchases don't do it.
The Halifax and Royal Bank of Scotland All-in-one credit cards both offer 0% for 9 months on balance transfers and purchases, with a 3% fee for balance transfers.
2. Make sure you don't miss a monthly payment.
If you ever miss the minimum payment it is likely that your credit card company will end your 0% balance transfer deal or life of balance deal and the debt will revert to the standard APR rate. This is a Bad Thing.
Can't get a new credit card?
If you can't get a new credit card but still want to reduce your interest payments try contacting your existing credit card provider to see if they have any balance transfer deals for existing customers.
If you are successful with an application but the credit limit you're offered is not big enough to cover the debt, move some of it anyway as this will help reduce your monthly interest payments.
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