The table below provides a comparison for some of the best 0% credit card balance transfer deals for selected UK credit cards.
A credit card balance transfer is when you move a debt from an existing credit card onto another credit card with a lower or zero interest rate. This is usually offered to attract new customers and lasts for a specified period of time, which is often 6 months, 9 months, 12 months or occasionally 15 or 16 months. When the introductory period expires, the interest rate reverts to the standard rate.
When choosing a credit card, the first thing to consider is whether you already have credit card debts. If you do then your priority should be to find a card with a good balance transfer rate – there are plenty out there with a zero per cent balance transfer offer.
When you transfer your credit card balance you are effectively paying for your current debts on one card using a new card so that you now owe money to the new card. If that new card has a special introductory cheap rate for balance transfers then your previous, more expensive, card will be debt free and you'll be paying less interest, potentially zero per cent, on your new card.
The trick to paying off this debt without incurring any additional financial burden is to make sure that your monthly repayments are adequate enough to cover the debt before your introductory period matures. The most important rule to remember is not to buy anything with your new balance transfer card. If a card offers a genuinely good balance transfer rate then the chances are it won’t offer a similarly attractive purchase rate.
If you still want to spend on a credit card then you’d be well advised to get a second card for purchases and focus solely on paying off your balance transfer debts with the first card. If you’re doing this, it’s obviously in your interests to find a card with a good introductory deal on purchases.
Most providers charge a fee for balance transfers, which could be two or three percent of the amount you are seeking to move.
A study by Moneysupermarket suggested that as many as 3 million cardholders in the UK (around one in 10) pay off only the minimum amount on their card each month, which will result in expensive interest charges.
In the case of a person who borrowed £1,000 at 18.13%, it would take them 17 years to repay their debt if they simply repaid the minimum amount each month. The total interest charge would be £1,113, with the total amount they would end up paying back amounting to £2,113, more than double the original sum borrowed.
Credit cards are best suited for short term borrowing and anyone with an outstanding balance on their card should consider switching to a credit offering 0 per cent interest on balance transfers. You should then aim to repay the debt as quickly as possible.
Figures from the BBA, the UK banking and financial services trade association, reveal the average amount transferred in August 2010 was £2,180 and the average card APR stands at around 18%, so these figures are used in the example below to show how much could be saved with a balance transfer.
Balance to transfer : £2180
Current card APR: 18%
Current monthly repayment: £66 (which equates to around a 3% minimum repayment)
New card deal: 0% on balance transfers for 16 months
New card balance transfer fee: 2.9%
Saving over 16 months: £335