If you’re carrying round a large debt, you could find yourself caught in a viscous circle of balance transfers and their attached fees. While lifetime balance transfer cards won’t let you escape your interest payments altogether, they do offer a long-term alternative.
Balance transfer fees now apply to all cards carrying 0% interest on balance transfers- there’s no escaping them. As well as this cost - which is likely to be three per cent of the balance - there’s the hassle involved in trying to remember to switch to a new card every 6-12 months.
This practice has another drawback too; because you get a complete break from interest payments you’re less likely to be worrying about your credit card debt and many people get to the end of their promotional period without having cleared their balance.
If this sounds like you, the best course of action is to find a good lifetime balance transfer card and pay your debt off at the lowest rate possible.
Although they’re generally known as “lifetime balance transfer cards” most of these cards don’t actually offer a “lifetime” promotional rate. Rather, they offer a very low rate that lasts for around five years on the balance transferred.
Lifetime balance transfer cards offer really very low APR on balance transfers - with typical rates between 3.9 per cent and seven per cent APR.
This means that you could get yourself a better rate than an unsecured loan, so they’re also a good way to get credit. Bear in mind though, that as low as the interest might be, you still want to avoid paying as much as possible so try to clear your debt as quickly as you can.
The average UK credit card carries a debt of £4,500 according to money education charity CreditAction, and the standard rate of APR on credit cards is 17.27 per cent. But what does this actually mean for you?
The table below compares our current best buy lifetime balance transfer card against the current best buy zero per cent interest card and a standard credit card with an almost-average interest rate.
Using the UK’s average credit card debt, it works out how long it would take to pay this £4,500 debt off at the minimum amount each month - and how much interest you would have paid at the end of it all.
However, it doesn’t take into account the 2.5 per cent transfer fee on the HSBC card that would cost you £112.50, or the 2.89 per cent transfer fee on the Virgin credit card (www.virginmoney.com) which would cost you £130.05
HSBC credit card
Virgin Money credit card
BA Amex credit card
Interest rate on transfer of £4,500
4.9% until 2012 (then 15.9%)
0% for 15 months (then 15.9%)
17.9%
Total interest you pay on a balance of £4,500
£1,200
£2,246
£4,484
Number of years to pay off £4,500 making only minimum payments
Finding a new credit card every 6-12 months is a pain that you don’t want so these cards are great if you have a large debt on your credit card and do not want to be constantly moving your balance to a new card after each zero per cent offer ends.
They are especially good if you have a large credit card debt and won’t be able to pay off the full amount before the end of a zero per cent balance transfer deal.
If you can manage to pay your balance off within the time period offered, you’ll be able to clear your debt at as little as four per cent.
And even if you only ever pay the minimum amount off your debt, a transfer of £4,500 to the HSBC (www.hsbc.co.uk) card would only cost £197.00 a year in interest until 2012 when the rate will go up to 15.9 per cent.
But be warned
These cards shouldn’t be used for everyday spending. Because of the way that payments against your credit card are tiered, you will always pay the “cheapest” debts off first.
This means that if you have transferred a balance, and then use your card for more spending - even if your card offers zero per cent on purchases for 12 months - any payments you make to your card will go against your balance transfer, not your new spending.
Then, once your purchases offer has expired, you’ll be charged the much higher, standard rate on all the things you’ve bought.
If you’ve been hoarding a massive debt for some time, either paying large amounts of interest on it or continually moving it from one interest free card to the next, then a lifetime balance transfer card could be the move you need to finally clear your debt.
