Credit card balance transfers: Shopping for the best deal
Credit cards are a lifeline for many consumers. Essential for online shopping, work expenses and providing an extra layer of protection when shelling out for expensive goods; credit cards are a useful financial product.
But interest racks up quickly on credit cards and can turn a flexible friend into a debt trap.
Debt on credit cards can become very expensive and build up to the point where even the minimum payment becomes unmanageable.
A step toward breaking the cycle of debt is to find a credit card that offers 0% interest on balance transfers - or at least a low interest rate - and use the extra cash saved to pay down the balance further.
Sarah Routledge rounds up the best 0% interest balance transfer cards on the market.
These cards should give you an idea of what is available - but remember they are all suitable only for people with good credit. To give your application a better chance, ask one of the credit rating agencies for your credit record and make sure there are no errors, you are listed as being on the electoral role, and you are not linked with anyone who could damage your rating.
"Also take into account that on most of these cards you will be paying a balance transfer fee, and work out a realistic repayment schedule to make sure it will be worth it," recommends Ricky Bruce, financial researcher for Moneyfacts.
"And if you are going to transfer a balance to a card, make sure you look out for a negative payment hierarchy," he adds.
Longest 0% offer period
Virgin Credit Card
In terms of length of time at 0%, the Virgin Credit Card is the one to beat. Customers who transfer their balances from other cards within 60 days benefit from 16 months of 0% interest.
Another advantage of this card is that it allows 0% for 16 months on money transfers - this allows you to transfer other debts, such as an overdraft, or personal loan to your card, effectively giving you an interest-free consolidation loan.
There is also a three-month window for 0% interest on new purchases.
Remember the 16 months at this rate starts from the date your account is opened, not from when you transfer your balance, and a handling fee of 2.98 per cent applies on this card.
Money transfer fees are slightly higher, at four per cent.
Also, as the Virgin Credit Card is issued by MBNA, you cannot transfer a balance from another credit card issued by them.
And this card operates a negative payment hierarchy - this means the debt with the lowest interest rate will be paid off first - so if you use this card to buy new purchases, interest will start to be charged on the item even if you pay it off within the month, until you clear the entire balance on the card.
It is particularly important to bear this in mind if you want to use the card for cash withdrawals, which are charged 27.9 per cent.
After the 16 months are up, the interest rate reverts to a rate of 16.6 per cent.
HSBC, Royal Bank of Scotland, NatWest
These banks offer a longer 15 months on 0% for balance transfers for a fee of 2.9 per cent, but you will need to have a current account to with the bank to qualify.
Rewards
MBNA Rewards Credit Card
The 0% offer on balance transfers on the MBNA Rewards Credit Card lasts for 13 months, slightly less than the Virgin card, and the handling charge for transfers is only slightly lower, at 2.9 per cent.
A negative payment hierarchy is also in operation here, so if you want to use this for new purchases as well as balance transfers, bear this in mind.
Although the card also offers 0% on new purchases, this will only last for three months, so after this any new purchase on your card will attract the standard rate of interest, currently 15.9 per cent.
Money transfers are also available on this card, for 13 months, again with a four per cent handling fee.
As the name of the card suggests, this comes with reward points. For every pound spent on the card, the user is rewarded with one point, which can be used for high street vouchers, travel and entertainment discounts and as cash back.
This could appeal to consumers looking to combine a rewards card with a balance transfer card - but remember anything spent on the card will attract interest! A better alternative might be to either wait until you have cleared the balance to spend on it, or have two cards if you want to collect reward points - one for new spending and one for a balance transfer.
The BT Credit Card
Similar to the MBNA card, the BT Credit Card offers 13 months of 0% interest on balance transfers, 13 months on money transfers, and three months on new purchases. The handling fee on this card is three per cent, slightly higher than the other two.
At the end of the promotional period, the typical interest rate will revert to 16.9 per cent.
The advantage to this card is it will save you money on your BT bill if you spend on it, with 1p for each £2 spent on the card up to £250 spent on retail purchases per month or part of a month, and at the rate of 1p for each £1 spent on retail purchases over £250 in any one month.
In any 12-month period, the maximum discount on your bill the card can earn you is a not insignificant £75.
This card is also issued by MBNA, so again, you will not be able to transfer the balance from other MBNA cards.
Best for spending
Nationwide Classic Card
Another card with a 0% balance transfer period of 13 months, but with a difference - Nationwide's Classic Card offers a positive order of payments, which means the card provider will pay off the debt being charged at the highest interest rate first.
The card also comes with a free 12-month extended warranty when used to buy many gas or electrical products and has free purchase cover for loss, theft or damage to most purchases over £50.
There is also a three-month period of 0% on new purchases, and the handling fee for balance transfers on this card is three per cent.
These features make this card ideal for someone who wants to transfer all their balance over, but still use the card for new purchases.
After 13 months the card will typically revert to 19.9 per cent, which is higher than some of its competitors and could be a shock if you have become used to 0%.
Low rate cards
Capital One Low Rate Balance Transfer
Once the introductory rate on 0% balance transfer cards ends, consumers often complain they are immediately put on a very high rate. If you know you can clear the balance of the card during the promotional period this should not be a problem, but if you think it may be longer, it is worth considering a low interest rate card rather than no interest.
The Capital One Low Rate Balance Transfer card offers the low rate of 6.9% p.a. fixed on balance transfers until January 1st 2012, with no handling fee for balance transfers.
After this time, the card reverts to the higher rate of 15.9 per cent.
Barclaycard Simplicity Credit Card
The Barclaycard Simplicity Credit Card offers a similarly low 6.8 per cent, which applies to any balance transfer and new purchase you make, although there will be a handling charge of 2.5 per cent on this card.
But the rate is not a promotion, and although it is variable, it is aimed at customers who do not want to switch cards every few months and is significantly lower than the typical APR of other cards.
As the rate for balance transfers and new purchases is the same, you could also use this card for day-to-day spending.
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