In debt? Make a move

FIVE-MINUTE GUIDE TO... ACCOUNT BALANCE TRANSFER CARDS

CHRISTMAS has come and gone but for those who funded the festive spree on a credit card, the debt remains. That can prove expensive, with credit cards charging APRS of around 21.9 per cent, but you may be able to reduce it to zero by switching your debt to a balance transfer credit card.

These charge zero interest for an introductory period, giving you breathing space to get your debt under control.

The good news is that balance transfer deals are getting more generous again, after a spell when introductory periods shrank.

The longest interest-free balance transfer deal now lasts for almost three years, according to business information firm Defaqto.

Virgin Money’s introductory deal lasts for 35 months, although you have to pay a transfer fee of 2.94 per cent of the debt you transfer.that will cost £29.40 for each £1,000, although the saving should still make this worthwhile.

MBNA offers a balance transfer deal for 33 months with 2.69 per cent, while M&S Bank, HSBC, Santander and Halifax offer deals lasting 31 months, all with introductory fees. If you want to avoid paying an initial transfer fee, Sainsbury’s Bank offers a shorter 21-month introductory rate with no upfront charge, while Natwest offers a fee-free 20 months.

You will not automatically qualify for these deals, it depends on your credit rating, said Defaqto consumer banking expert Katie Brain: “The longest deals come with a fee so it is important to weigh this up before transferring.”

Make a note of when your balance transfer period expires and aim to clear your debt in full before then. Brain said: “If you don’t, you could be in for a nasty shock when your zero per cent rate suddenly reverts to a much costlier one.”

At this point, the average interest rate charged is 22.96 per cent, while some cards charge as much as 34.94 per cent, she warned.

Somebody owing the average £2,898 credit card debt could save £1,831 by switching to a balance transfer card, according to figures from Totallymoney.

Chief executive Alastair Douglas said the big attraction is that 100 per cent of your monthly repayment will go towards clearing your debt: “The result is that you can pay off your debts quicker and more cheaply.”

As the cost of living soars and inflation hits a 10-year high, a balance transfer card is one way of cutting your monthly outgoings. “When it comes to credit cards, loyalty doesn’t pay, so shop around,” Douglas added.

ONCE YOU have taken out a card, set up a direct debit to ensure you make every monthly payment, said Andrew Hagger, personal finance expert at Moneycomms.co.uk: “Otherwise that interest-free rate will disappear and you will immediately start paying interest.”

Do not use your balance transfer card to make new purchases or cash withdrawals, as the zero per cent deal is only valid on the transferred balance.

Most important of all, ensure that you clear the debt before the introductory period ends, or at least shift it to a new balance transfer card, Hagger said: “Make sure you clear the debt at some point, rather than borrowing more and more.”