If you're looking to move expensive debts to a balance-transfer credit card to give yourself some breathing space, you need to act fast. Credit cards deals with a lengthy interest-free period are getting shorter.
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Six months ago, you could shift debt on to a credit card for a huge 43 months at 0 per cent. However, in early November, the “best buy” interest-free credit card dropped to 39 months. Since then, the top offering has shrunk again – this time to just 38 months – and it’s likely this figure will continue to fall in the coming months.
So what exactly is going on?
After years of competition with promotional terms getting longer and longer, the 0% balance transfer market is changing rapidly, and we're now seeing lenders start to trim back the length of these popular deals.
At the height of the credit card war, you could 43 months interest-free, but the best deal is now five months shorter – and this downward trend is expected to continue.
Both the Bank of England and City regulator, the Financial Conduct Authority (FCA) have voiced concerns over the growing level of consumer debt in the UK. This, combined with rising interest rates, is forcing card providers to rethink the products they offer.
How to use balance transfers sensibly
Are there still some decent deals to be found?
While interest-free balance-transfer deals are shrinking, there are still a host of providers offering 38 months at 0%. In many cases, if you need to spread your debts, moving to one of these cards can still make a lot of sense, as having more than three years interest-free can save you a huge amount in interest payments if you're transferring from a card with a hefty rate.
How to clear your debts
Follow the golden rule
The golden rule is that once you’ve made a transfer, you must ensure you clear your balance by the end of any interest-free period, otherwise you will be charged interest on any outstanding debt.
Watch out for costly balance transfer fees
You also need to watch out for costly balance-transfer fees. While several of the cards offering 38 months interest-free have a fee of around 1.5%, some fees range as high as 2.69%. This could prove quite costly, especially if you’re transferring a significant sum of money.
If you think you can repay your debt in a shorter amount of time, one alternative might be to opt for a card with a slightly lower interest-free period, but with a lower balance-transfer fee – or no fee at all.
Getting accepted can be a challenge
In addition, be aware that if you do want to apply for one of the “best buy” interest-free balance-transfer credit card deals, you may not get accepted, as you’ll need a squeaky clean credit record to get a “yes.”
Avoid applying for multiple cards in quick succession, as this could worsen your chances of acceptance, as lenders think you look desperate.
Think carefully about your choices, and make use of eligibility tools – you can find them at Money.co.uk, Totallymoney and Money Saving Expert.
Other tips when opting for a balance-transfer card
• Remember these deals only work if you stick rigidly to all the Ts and Cs.
• Never miss a minimum monthly repayment. If you do, you risk losing your 0% deal – and could also face a black mark on your credit file. Setting up a direct debit to cover at least the minimum is the simplest way to be sure you always pay on time.
• Never use one of these cards to withdraw cash, as you will be charged a fee for the privilege. This could also harm your credit score as it’s viewed by lenders as an indicator of financial stress.
• If you're unable to pay off your debt during the interest-free period, then consider switching to another 0% deal before the offer expires.
Credit card mistakes you can avoid
What’s happening to interest-free purchase deals?
With a purchase card, you don’t get charged interest on your balance for a set period which means all your repayments go towards paying down your debt, rather than clearing your interest. This makes it quicker and cheaper to clear.
The longest interest-free period on a purchase credit card is now a huge 31 months.
While 0% balance-transfer deals are shrinking, interest-free purchase deals on credit card deals are getting longer. In fact, the longest interest-free period on a purchase credit card is now a huge 31 months. This is four months longer than the best 0% period two years ago, when the top card offered 27 months interest-free on purchases.
How credit cards can help protect your consumer rights
Plan ahead to clear your debt in time
While an interest-free purchase card offers free credit for many months, you'll face interest on any outstanding balance at the end of the deal period – and this can be an expensive shock.
With this in mind, it's well worth planning ahead to ensure you have cleared any debt before the end of the 0% period.
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