Switch your debt woes
FIVE-MINUTE GUIDE TO... BALANCE TRANSFER CREDIT CARD DEALS
CONSUMERS have a terrific weapon in their armoury in the battle to pay off Christmas debt, generous interest-free balance transfer credit cards.
These give borrowers much-needed breathing space by allowing them to switch their balance to a new card charging zero interest for an introductory period. In January last year, more than 700,000 took advantage.
Introductory rates once lasted as long as 43 months, but they have been hacked back by a third, giving borrowers 14 months less to clear their debt before sky-high APRS of around 20 per cent kick in.
Balance transfer cards can still help you blow your debt away, but must be handled with greater care.
WORSE DEALS
You still have a choice of 76 balance transfer cards, but that is sharply down from 122 in 2017.
Today’s best introductory offers, from Sainsbury’s and MBNA, run for 29 months, a five-year low for January, figures from Moneyfacts.co.uk show.
Finance expert Rachel Springall said charges for transferring your balance have also increased: “Based on the top deal, consumers would need to pay £22.80 more in upfront fees than a year ago.”
Springall said with less time to clear your debt, you must pay more than the monthly minimum: “Someone with a £3,000 debt who paid £150 a month would clear the debt in 20 months.”
Andrew Hagger, personal finance expert at Moneycomms.co.uk, said issuers are responding to a clampdown by City watchdog the Financial Conduct Authority, aimed at breaking the cycle of persistent debt, where people spend more on interest, fees and charges than in clearing the actual debt.
Hagger said this is hitting profits: “Interest-free deals lasting more than 40 months were never sustainable in the long term.” He expects the decline in balance transfer introductory offers to continue, but at a slower pace.
PLAN NOW
Alastair Douglas, chief executive of credit expert Totallymoney, said those who cannot clear their balance according to the shorter timetable face punishing APRS that may trap them in a cycle of debt.
Too many have come to rely on interestfree cards to stay afloat. “This could be a ticking time bomb,” he said.
Douglas urged anyone seeking the best zero per cent deal to move fast, before lenders cut the “honeymoon period” even further.
First check your eligibility by confirming your credit rating at agencies such as Equifax and Experian, or through Totallymoney.
Douglas said: “This will show how likely you are to be accepted, saving time and avoiding a knock to your credit score from being turned down.”
Once you have a card, set up a direct debit to ensure you make every monthly payment, otherwise that interest-free rate will disappear and you will immediately start paying interest.
Do not use your card for purchases or cash withdrawals, as the zero per cent deal is only valid on the transferred balance.
Make sure you clear the debt before the introductory period ends, or shift it to a new balance transfer card, otherwise you face high interest charges, Douglas added.
Balance transfer credit cards still give you ammunition in the war against debt, but avoid shooting yourself in the foot.