A guest post from Andy about credit cards….useful things if used responsibly.
A balance transfer can be a good idea because it can help you to decrease your debt. You can transfer the amount of money that you owe on a credit card, for instance, to another lender.
With a ‘super’ balance transfer, you can even transfer the amount that you owe on a personal loan or your overdraft from your credit card. This is one of the easiest ways to save money because these cards will not charge you anywhere near as much in interest, in fact, in the UK most of the top cards don’t charge any interest at all for over a year.
If you are having trouble making your payments or reducing the amount that you owe because the interest rates are too high, this is certainly an option that you should explore. Below are a number of things that you need to look into when you are going over the various options that are on the current market.
1. The Promotional Interest Rate
First, you must look at the interest rate that you will get when you first open an account. If this is not lower than what you are currently getting, the transfer will not be helpful at all. You need to try to find the lowest interest rates that you can – thankfully most balance transfers are 0%. Sounds too good to be true? It’s not. You’d be silly not to take advantage of it.
2. How Long This Promotional Rate Lasts
The next step is to see how long this rate will apply to any balance being transferred. If the low rate only lasts for a month, it won’t be very helpful at all. In the UK, the market is so competitive that nearly all balance transfer offers are interest free for at least a year, but some (like those offered by the Barclaycard Platinum and Halifax Balance Transfer Card) offer nearly two years interest free on balance transfers. Therefore, it is important that you look at this in connection with the interest rate and not just at the rate itself.
3. What the Rate Reverts to When a Balance Still Exists
After that, you need to work out what the rate will change to after the promotional period ends. It may be possible for you to find a deal that will never change, where you will be locked into the low interest levels until everything is paid off. This is not common, however. The vast majority of balance transfer deals will revert to a higher interest rate after their promotional offer expires. If you do not think that you can get everything paid off before this happens, you need to know how much the rates will jump so that you can see if the deal is really as good as it sounds.
4. Additional Fees and Charges
Do not take out any balance transfer offers until you know exactly what additional costs will be involved. In the UK it is standard practice to be charged a balance transfer administrative fee, typically in the region of 3% of your balance. You need to know how much all of this will cost because this can help you to see if transferring your debt is even worth it. If you have to pay out more than you will save, you should not make the transfer.
5. Limitations Regarding Transfer Totals
Furthermore, you need to see if there is a maximum limit regarding how much debt you can even transfer over in the first place as some banks will only allow you to transfer so much. If you have £10,000 of debt, you need to make sure that you do not apply for a balance transfer that only allows a maximum of £3,000.
6. Your Status as a Customer
Some banks will require you to be a customer before you can actually open an account and apply for a balance transfer. However, these tend to be in the minority of offers – most offers are open for application by anyone. Regardless, check first if the balance transfer offer you want is available only to existing accountholders.
7. Your Personal Credit Score
It also does not hurt to find out how your credit score impacts your rates. If you have a high score, you can sometimes get a much better deal given that most of the banks have variable rates on both balance transfers and purchases. If your credit history has been tarnished in the past, then do not apply for the most competitive deals on the market as they are reserved for those with excellent credit. Instead, people with impaired credit records should look for a credit builder credit card with a balance transfer rate. Of course, if your credit score is in the excellent range, then you can apply for a much broader range of offers.
Andy is the co-founder of Finance Choices, a comparison website offering UK consumers an easy and impartial way to compare a range of credit cards for people with poor credit.