Balance transfer credit cards to help you clear debt at a lower cost

Those with credit card debt who are also feeling the stress of rising energy, fuel and food bills may benefit from the resurgence of balance transfer credit deals.

Balance transfer credit cards are making a comeback, with the average interest-free period now the longest it’s been in four years.

As long as borrowers keep up with payments and adhere to terms they can use them to settle the debt without interest, rather than the typical credit card rates of 25 to 30 percent interest.

The average term for an interest-free balance transfer on credit cards rose to 602 days in March, according to Moneyfacts, up from 577 days in December.

For those with outstanding credit card debt, the costs of exorbitant interest payments can start to mount.

A balance transfer credit card allows a customer to transfer multiple credit card debts to a new card.

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

As the cost of living crisis begins to unfold, an increasing number of Britons may have had to rely on credit for their livelihood.

But exorbitant credit card interest rates mean that many will only meet monthly payments rather than work fully towards debt settlement. This is where switching to a 0 percent deal and getting a plan together to pay it off can help.

Nearly four in five Britons say they have seen prices rise since the start of the year, causing households to accumulate £4.7 billion in debt, according to research by credit broker, Credit Karma.

It also found that the rising cost of living has pushed one in five Britons to take out credit cards, loans and overdrafts in the past three months.

Some of the biggest spikes have been on household energy bills. The price cap for the average household will rise from £1,277 to £1,971 from April 1, and analysts at Cornwall Insight are now forecasting another 47 per cent rise in the price cap from October. This will raise the energy price cap to £2,900.

This could lead to a debt crisis, according to Credit Karma, with four out of five of those who have borrowed money to meet the rising cost of bills for fear they will not be able to make the payments.

For borrowers who struggle to keep up with credit card payments, a balance transfer card can be part of the solution.

However, they should consider whether they are likely to be accepted for the card before applying, as being denied or submitting too many applications could affect their credit score (see “Would you be accepted for a balance transfer credit card” below) .

Although the number of balance transfer deals remains lower than it was before the pandemic, the 69 deals currently available is the highest on record since April 2020.

According to Moneyfacts, the fees charged when you transfer debt to one of these credit cards are also declining.

The average balance transfer fee is now 1.95 percent, down from 2.23 percent a year ago. This is the lowest recorded average since October 2006 when it was 1.82 percent.

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

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

Money Charity estimates that the average UK household has credit card debt at around £2,112, while Moneyfacts states that the average credit card APR is now 26.4 per cent.

With a 0 per cent balance transfer card, the average credit card debt could theoretically be settled in one year if £176 was paid each month without interest being applied.

Paying off the same amount of debt over a 12-month period on an interest-bearing credit card would cost an extra £302 in interest, based on the average annual interest rate.

Rachel Springol, finance expert at Moneyfacts, said: ‘The credit card market has had to adjust to economic uncertainty, and as we celebrate two years since the first UK lockdown, the latest move on balance transfer cards is welcome news for consumers looking to make the move. . Their debt is interest free.

The growth in selection is also encouraging as we saw the number of deals fall to a record low during July and August 2020.

With the cost of living rising, consumers may be tempted to reduce their credit card payments, and while this is a nice flexible feature to have in times of need, it is imperative that borrowers realize their debt, any interest-free deal that may be about to expire, and switch if they They want to avoid incurring interest.

Will you be accepted for a balance transfer credit card?

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

In theory, those with the best credit rating are more likely to be approved for the card, as they will have a history of paying debts on time.

Those with a poor credit rating are more likely to be rejected, or be offered less attractive terms such as a higher interest rate or a shorter interest-free period.

Those who are rejected should keep in mind that applying for a number of other balance transfer cards in a short period of time will cause their credit rating to deteriorate.

Many card providers will not allow you to transfer balances from other products of their own, so you should determine the best deal for you outside of your current provider before placing an order.

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

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

To take advantage of the 0 percent introductory offers, you may have to transfer your balance within a specific time frame.

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

What are the best balance transfer deals?

Sainsbury’s Bank was one of the providers to make a significant change to its balance transfer offer last month, increasing the interest-free period from one month to 24 months. Subject to eligibility, it is also possible to get an interest free offer for a period of 32 months.

Santander also increased its interest-free offer to 21 months, from 18 months, on its no-fee deal.

For those seeking the longest interest-free period, the MBNA 33-Month Balance Transfer Card is the longest-running deal on the market.

However, it does come with a 2.69 percent fee, which means that borrowers may be able to find cheaper options if they are willing to forgo the length of the 0 percent term.

A cheaper alternative might be a 28-month balance transfer deal with Virgin Money, which comes with a 1 percent balance transfer fee.

A longer term may not always be the wisest option, especially if the no-fee deal gives you plenty of time to settle the debt.

For those looking for the longest interest-free period with no transfer fee, Natwest and RBS offer a 0 percent interest rate deal for up to 22 months.

The Santander 21-Month Balance Transfer Credit Card also offers a 0 percent balance transfer period of up to 21 months, with no transfer fee.

Is a balance transfer card right for you?

If you are able to settle your debt within a couple of months, a balance transfer card may not be the best option.

Balance transfer cards rarely come with any additional perks like cash back or rewards, for example.

If you’re looking for a credit card that rewards your everyday spending or gives you points to put towards your next trip, for example, you might prefer reading our latest roundup of the best credit cards.

However, for those with a large amount of credit card debt, a balance transfer deal may not make sense.

You can usually transfer up to 90 or 95 percent of the credit limit on your new card.

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