If Christmas has left you with a chunk of expensive debt, getting a balance transfer credit card is a great way to drive down your interest payments and clear your balance as soon as possible. We give you our top tips on choosing the best card.
If you have outstanding debts that you’re paying over the odds for in interest, a balance transfer card could turn out to be your new best friend.
Providing you pick a decent deal and play by the rules so called balance transfer credit cards provide you with a means of minimising the interest you pay on your debt so that you can put as much of your money as possible towards paying off your outstanding balance.
Ultimately the best card for you will come down to your individual circumstances and the size and nature of the debt you wish to transfer. Here's what you need to consider:
How long will it take you to clear your balance?
When you’re looking to transfer an existing debt over to a balance transfer credit card the first step is to work out how long it might feasibly take for you to pay it off completely.
To do this you’ll need to work out both:
- How much you need to transfer in total
- How much you’ll be able to pay off a month
From this you should be able to get an idea of how many months it will take you to pay off your debt completely which, in turn, will help you decide which sort of balance transfer card to go for.
Larger balances
Take a look at the longest interest-free balance transfer offer currently available on a credit card (the norm is usually between 12 and 16 months). If you anticipate that it will take you longer than this to pay off your debt then you have two options.
- A card that comes with a long interest-free introductory deal on balance transfers.
- A card that applies a fixed low rate to your balance until it is paid off completely.
In this case your decision to go for either a limited-period 0% deal or a low-rate lifetime deal is likely to depend on whether or not you think you will remember to move your balance again when the first 0% deal ends. If so then choose the card that:
- Offers the longest 0% offer on balance transfers
- Applies the lowest handling fee on a 0% deal of this length
If you go for the interest free option make a note to start looking for a new deal in plenty of time and again, remember to work out how long it will take you to pay off your outstanding balance and choose the best deal accordingly.
If you aren’t keen on the idea of switching again after a year or so then you may be better off with a low-rate lifetime of balance deal that stays the same until your debt is cleared. In this case you should look for a card that offers the best combination of:
- The lowest interest rate for the longest period (many but not all 'lifetime balance transfer cards' will fix the low rate applied to your transferred balance until you've cleared it completely).
- The lowest handling fee.
Smaller balances
Again, take a look at the longest interest-free balance transfer deal available. If you are confident that you could clear your debt completely within this time then a credit card with a 0% deal on balances is likely to work out cheapest. However, don’t simply apply for the deal with the longest interest free offer unless you need it as you could end up paying over the odds in handling fees.
Instead, work out how many months it will take you to pay off your debt completely and then choose a credit card that offers the best combination of:
- An interest free deal that’s long enough for you to clear your transferred balance completely
- A low handling fee
What else should I consider?
When you’re comparing your balance transfer options it’s really important that you check that you will actually be eligible for any credit card you’re interested in.
The application criteria for each card will specify the minimum age, income and credit rating you need to get approved and will vary from card to card and provider to provider. It’s also worth checking whether the card you’re interested in is only available to existing bank or building society customers or if there are any other restrictions placed on who can get a card. There’s no point applying for a card that you won’t be accepted for so checking that you’re eligible is a must.
Likewise, remember that many cards won’t allow you to transfer a debt from a card you already have with the same provider – for example, you’re unlikely to be able to transfer a debt from one card issued by MBNA to another issued by this provider. Taking all these things into account you should be able to find the best balance transfer card to suit you.
