The MoneySavingExpert revealed how to become debt-free quicker by using 0 per cent balance transfer cards – here’s what you need to know.
What is a 0% balance transfer credit card?
Balance transfer credit cards could be a useful option if you have debt spread across a few different cards or soaring interest rates.
They allow you to move the balance from other cards onto a new one, and you pay no interest for a set period.
This means your debt is easier to pay off because money saved on interest can be used to put toward owed finances.
“A balance transfer is the key cost-cutting weapon – it’s where you get a new card that pays off debt on old credit and store cards for you, so you owe it instead, but at 0 per cent interest,” a letter from the MSE added earlier this year.
“A card will have a 0 per cent period, during which you pay no interest – for example, 28 months – and sometimes you’ll pay a small fee,” Martin Lewis penned in his latest statement.
“It means you become debt-free quicker, as more of your repayments reduce the debt, rather than pay interest.”
Which balance transfer card is best?
Money can’t be transferred from one card to another within the same banking group.
This means your options will be narrowed down by banks you do not have debt with.
There is an eligibility calculator on the MoneySavingExpert website to help assess which cards are suitable for you.
You will need to pass a credit check to be approved for a 0% balance transfer card.
The best card listed on the MSE website was Barclaycard, who offer the longest 0 per cent period of 30 months for those who are pre-approved.
Others may see 15 months interest-free months and/or a higher 31.9 per cent rep APR.
M&S bank had the next best deal, with a 0 per cent period of 28 months, 2.99 per cent fee and 23.9 per cent rep APR.
Santander have a very similar option but with a 3 per cent fee and 22.9 per cent APR.
Coming in fourth was Sainsbury’s with 20 month interest-free rates, if you are pre-approved, and 1 per cent transfer fee.
HSBC offers the longest period with no fee, and if you can repay in full within 16 months, this transfer will cost you nothing.
Virgin Money and Chrome by Vanquis Bank were suggested as valuable options for those with poorer credit scores
MSE’s Five Golden Rules
- Martin Lewis strongly recommends clearing debt or moving it again before the 0 per cent or discounted rate period finishes.
- The MSE also advises card holders repay at least the monthly minimum – or the cheap rate may be taken away.
- He warned against spending or withdrawing cash as it is normally at an expensive rate.
- Balance transfer card holders usually have to move their money within the first one to three months to get a 0 per cent rate.
- Remember, you can’t balance transfer between multiple cards from the same bank.
How to apply for a balance transfer card
By applying directly to the bank, it will be noted on your credit report and that could go against you in the future.
The MSE eligibility calculator is a great way to see who will accept you for a card.
This is because the system uses a “soft search” that lenders are unable to access.
The easiest way to choose a card is selecting the one with the lowest fee in the amount of time you can repay in, according to the MSE.
“The longest charge a one-off fee, as a percentage of the amount of debt you transfer (for example, 2.9 per cent is £29 per £1,000 shifted)”, Martin Lewis explained on his website.
“But there are shorter options with no fee, so no cost if you can clear your debt within 19 months or fewer. If unsure, play safe and go long.”
There is also a guide for those with a bad credit past on how credit cards will affect them.
How can I get debt help?
If you’re concerned about debt, Citizens Advice suggests taking things a step at a time by working out a budget and keeping an eye on your bank balance.
It’s good to pay off more than the minimum on cards each month, even if it’s not by much.
They also advise paying the most expensive credit card first and it’s important to prioritise if there are several debts.
Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
Groups like Citizens Advice, StepChange and National Debtline can help you manage your debt and negotiate with your creditors.
You should always have a look at what free options are available for managing debt before you turn to a private firm for support.