As of December 2018, the average UK household held £7,863 in credit card debt. Based on average interest rates, and by only making the minimum payments, it would take over 26 years to pay these debts off. If this sounds like you, and you don’t want to be in debt for the next two or more decades, taking advantage of 0% balance credit card transfers could help you significantly reduce your debts.
How to transfer a credit card balance
There are two ways you can transfer a credit card balance to get a lower, or 0%, interest rate. You can:
- Apply for a new credit card with a 0% balance transfer offer.
- Transfer the balance from an existing credit card to another based on a 0% balance transfer offer received from your current lender.
Either way, you end up with a debt you are no longer paying interest on for a set period.
Applying for a new card will generally get you a longer period interest-free. However, this could also impact your credit score as you’re increasing the amount of money available to you. If you have an excellent credit rating, this might not be too much of a problem but, if you don’t, or plan on making a larger credit application (for a mortgage for example), you might want to stick with your existing lenders.
Getting the most from 0% credit card balance transfers
Transferring is only the start of getting yourself debt free, or at least reducing your debt to a more manageable level. Once you’ve done that, remember to:
1. Pay off more than the minimum
Transferring your balances could lead to a reduction in your minimum payments, meaning more money in your pocket. While more money is never a bad thing, it’s a really good idea to use at least some of it to pay off your credit card debt because, in the long-run, you’ll be much better off financially.
Try, then, to pay off more than your minimum monthly repayment, even if only by a few pounds. As you’re not currently paying interest, even this will make a real difference to your overall debt levels.
Don’t reduce your payments as your balance goes down. Stick to the same repayments, which will allow you to cut into your debt even more. As you’ve already been making this level of repayment, it shouldn’t be too much of a hardship, but if you are worried, you might be tempted to pay less, set up a direct debit, so the same amount goes out each month without you having to think about it.
2. Stop using your credit cards
When you really need something, it’s hard not to reach for the credit card, even if you know that you’ll end up paying more in the long run. And, for emergencies, credit cards may be your only option.
However, for everything else, it’s important to take a moment and decide just how badly you need something and if it’s worth putting it on your credit cards. This is especially true for ones where you’ve transferred balances to take advantage of 0% as lenders will charge interest on these new purchases and prioritise them against any balance transfer, meaning it will take you longer to pay off your debts.
If you need to use a credit card for emergencies, look at applying for one that offers 0% on purchases; make sure, however, that you can pay off any balances before you are charged interest.
3. Transfer to another 0% card
Hopefully, you’ll have paid off your debt before the end of the 0% interest period. However, if you haven’t, look for a new card with the same interest-free offer. This way, you can keep paying off the principle, meaning you’ll be debt free sooner rather than later.
Credit card companies will normally write to you when your 0% offer is due to come to an end; use this as the trigger for searching for new cards. If you can’t find an interest-free offer, look for ones with a lower interest rate than your current card. Remember, though, to add in any transfer fees or charges (generally up to 3%) into your calculations to make sure you’re still making savings.
What to do if you can’t get a 0% balance transfer
Depending on your credit rating, you may not be eligible for a 0% credit card balance transfer. This doesn’t mean that you can’t find a better deal so you can start working on reducing your debt. The best place to start is using a credit card eligibility checker, available through price comparison sites like here on Lending Expert.
This will give you a good idea of what you might be approved for without impacting your credit score because it carries out what is known as a ‘soft search’. It may bring up 0% interest cards you hadn’t expected or, worst-case scenario, cards that have a better interest rate than you get on existing credit cards, meaning you can start saving some money.
Speaking to your card provider is another option. If you have a good history of repayments, they may be willing to offer you a 0% offer you wouldn’t be eligible for if you applied as a new customer. Alternatively, they may be willing to reduce your interest rate for a period of time so you can get your debts under control.