Credit card balance transfers have long been a popular means among credit card holders of saving money by transferring their balance to a new account.
While the credit crunch may have squeezed the life out of the mortgage and personal loan market, balance transfers are more popular than ever and consumers enjoy an excellent range of credit cards to choose from.
So, what are credit card balance transfers? If you have a credit card balance you are struggling to repay, you can save money and buy yourself some time by transferring the balance to a new card that offers little or no interest on the transferred balance for an agreed period of time.
In fact, there are now a number of credit cards on the market offering 0% balance transfers of 12 months or longer. While many lenders will charge balance transfer fees, it is still possible to save significant amounts of money by switching credit cards.
“Virgin, Capital One and Barclaycard have long been regarded as the fore-runners in the balance transfer market and again they are leading the pack, with 15 and 14 month 0% deals, albeit with balance transfer fees of around three per cent,” said Steve Willey, head of credit cards at moneysupermarket.com.
As with all forms of credit these days, lenders will only offer credit card accounts to customers with squeaky clean credit ratings, so be sure that your finances are in order before making any new application. That said, the decrease in the number of eligible customers means that credit card lenders are getting desperate for business, and so, are offering increasingly good deals.
Without a doubt, the biggest drawback of transferring your credit card balance is the balance transfer fee. These are often in the region of 3% so, for example, you would pay £90 on transferring a £3,000 credit card balance. If you are not planning on clearing your credit card balance anytime soon, this fee is usually well worth paying.
If you shop around, you should find a number of cards offering 0% interest on transfers for up to 12 months. Some may offer very low rates of one or two per cent for longer than this, while others will offer very competitive balance transfer fees. The best deal for you will depend on how much you owe, and how quickly you can pay it back.
As with all personal finance products, you should read all terms and conditions carefully if you are availing of a balance transfer, and there are a few pitfalls you should be aware of. For example, you should always check what the interest will be after the interest-free period expires to make sure it is competitive. Ideally, of course, you should have your balance paid off before this period expires.
Also, remember that the interest free element only applies to your transfered balance. Any new purchases or cash advances made with the new card will accrue interest as normal.
However, balance transfers remain an excellent way to save money and there are some very attractive offers available at present.
“All of this is great news for consumers looking for a new credit card to transfer a balance,” says Willey. “However, the recent tightening of lending criteria by many lenders means all but those with the most gleaming credit profiles are accepted. As a result, the battle for the ‘best’ customers means that credit card providers are having to work harder to attract and retain them.”