For those who use credit cards to manage their debt, balance transfer cards have long provided a way to cut back on exorbitant interest payments by putting everything in one place.
But the growing popularity of these cards means that the deals available today are better than ever.
Credit agency Experian recorded a 27 percent increase in the number of people applying for a balance transfer card between September and November of this year, compared to the same period in 2019.
For those heading into 2022 with credit card debt hanging over them, the costs of really exorbitant interest payments can start to mount.
A balance transfer credit card allows people to pay off debt by transferring everything they owe 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.
Money Charity estimates that the average credit card debt per household in the UK is around £2,058, while Moneyfacts states that the average credit card APR is currently 26.2 per cent.
This means that a customer with a balance of £2,058, paying the minimum monthly payment of 3 per cent (£61) with an average APR of 26.2 per cent can save £1,341 over 34 months by transferring the balance to 0 per cent credit card, even after the 2.5 per cent balance transfer fee (£51.45) is included.
The temptation to transfer debt with a balance transfer credit card will be more enticing as interest-free deals seem longer and cheaper at the moment.
The average interest-free period on a balance transfer credit card rose to the highest level in more than three years, while the average balance transfer fee also fell to the lowest level since October 2006, according to Moneyfacts.
The average duration of 0 percent balance transfers on credit cards rose to 577 days, compared to 548 days in September, and up from 520 days a year ago.
This means that the average interest-free period for balance transfer credit cards is the longest since November 2018.
Balance transfer credit cards can help people manage their finances by allowing them to consolidate debt and save money on existing card balances.
Furthermore, the fees charged when you transfer debt to one of these credit cards are also reduced according to Moneyfacts.
The average balance transfer fee has fallen from 2.22 to 1.96 percent over the past year alone, which means it’s now the lowest on record since October 2006.
Moneyfact data also revealed that there are now 68 balance transfer credit card deals available, the highest amount on record in 2021.
“In the run-up to the holiday season, credit card providers seem to have overhauled their interest-free balance transfer offers,” said Rachel Springol, financial expert at Moneyfacts.
This can be an ideal timing for borrowers looking to consolidate their debt and have more time to pay off their balance without incurring interest.
Controlling exorbitant card debt with a balance transfer and using a 0 percent period to clear or at least reduce your debt can reduce costs and show responsible use of credit.
The terms for the 0 percent introductory balance transfer have been extended, the fees associated with the transfer have decreased and there are more options.
As we head into 2022, consumers would be wise to take the time to compare offerings now, especially if they are looking to consolidate debt.
However, those who transfer money via one of these cards will need to be sure to pay it back in a timely manner or risk facing higher interest rates.
Over the past three months, the average annual rate of purchase of credit cards has also increased, according to Moneyfacts, with the average annual rate now at 26.2 percent.
For example, over the past three months, Tesco credit card customers have seen an increase from 20.9 percent to 21.9 percent on the low-fee Balance Transfer MasterCard MasterCard.
What are the best balance transfer deals?
For those seeking the longest interest-free period, then you can have a 35-month Virgin Money Balance Transfer for any transfers made within 60 days, making it the longest deal on the market.
However, it does come with a 2.94 percent fee which means you may be able to find cheaper options if you’re willing to forgo the length of the cent.
A long-term Santander daily 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 balance transfer fee of 2.75%.
A marginally cheaper alternative could be the Sainsbury’s Bank 30 Month Balance Transfer Credit Card which offers 0 per cent interest on balance transfers for up to 30 months subject to eligibility.
The Sainsbury’s Card charges a balance transfer fee of 1.5 per cent, which applies to transfers made on application.
However, a longer term may not be the wisest option, given the fees involved.
Balance transfer deals that don’t come with a transfer fee should always be your first point of contact, said Keith Kilkors, credit and loan publisher at the comparison site.
Most credit card providers now do a simple credit search (which has no effect on your credit score) to help you get an idea of what your personal deal will look like.
There is simply no reason to opt for the longest 0 percent deal if the slightly shorter deal with no transfer fees will give you enough time to pay off your debt.
“Divide your outstanding balance by the amount you can reasonably pay each month to get an idea of roughly how many months of 0 percent interest you need to get debt relief.”
For those looking for the longest interest-free period with no transfer fee, Sainsbury’s 21 Month Balance Transfer Credit Card offers a 0 per cent 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 your new card’s credit limit, which will limit the amount of debt you can consolidate, but it may still be worthwhile anyway.
“If the maximum you can get isn’t high enough to cover the conversion, it might make sense to move as much as possible to the new, cheaper deal,” says Kilkors.
Then focus on clearing the remaining expensive debt first, making at least the minimum monthly payment on your new card.
In theory, it’s possible to get more than one credit transfer deal, but getting approved can be a challenge, and multiple applications for credit in a short period of time can damage your credit score and be a red flag to potential future lenders.”
Will you need a good credit score to get one?
Your credit score will likely determine which balance transfer deals you qualify for.
Without a very good credit score, card issuers may still approve you but offer a 0 percent shorter deal.
Your credit rating may be poor and therefore not eligible for deals offered by the primary service providers.
“There’s still some hope for lower credit scores,” adds Kilkors, “but beware — after the 0 percent rate is over, it’s going to get expensive.”
“People with lower credit scores may be able to get approved for interest-free offers from three to nine months.”
Examples include Vanquis Bank which offers 0 per cent for six months and 2.9 per cent transfer fee and Fluid which offers a 9 month period and 4 per cent transfer fee.
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