A competitive credit card market means there are some great balance transfer cards around. Here’s what you need to know before you sign up.
Borrowers can now benefit from the battle raging in the balance transfer market as lenders try to lure customers with record long-term interest-free deals.
The number of balance transfer cards offering 0 per cent periods of 13 months or more has soared in the last two years, from 13 in 2009 to 34 today.
Credit card providers are now upping the ante as they fight for top spot in best buy tables.
Chris Griffiths, Confused.com’s head of credit cards, says this growth in the balance transfer market is down to a combination of factors and although interest-free periods have been increasing, so have the rates and fees.
"The competitive element does play a part, as we have seen a number of moves and counter-moves over the last few months, with lender jostling to offer a better deal than their rivals," he said.
"All this competition is great for consumers as the 0 per cent deals available are the strongest we have ever seen, and the fact that so many lenders are involved in the battle means that most should be able to find the credit card offer that best suits them."
Best buy deals
Barclaycard Platinum is currently leading the way with the longest-ever balance transfer deal of 0 per cent for 20 months. And rumours are bubbling away that the record 20 month period will jump to 24 months, week commencing 18 July, 2011. This will signal the longest ever interest free period on any balance transfer credit card.
Following closely behind is MBNA and Virgin Money, as well as another Barclaycard card, all of which are offering interest-free deals for 19 months.
Elsewhere, Royal Bank of Scotland is offering 0 per cent for 18 months.
Reduce debt
Balance transfer cards are a great option for those looking to reduce their debt on an existing credit card or overdraft, as they can help you to repay what you owe more efficiently – and potentially more quickly.
However, you do need to watch out for hefty balance transfer fees.
Barclaycard has one of the highest fees at 3.2 per cent, on its 20-month deal. For the 19-month deals, MBNA has a balance transfer fee of 2.5 per cent, Virgin Money has a fee of 2.49 per cent and Barclaycard has a fee of 2.4 per cent.
Refrain from spending
"Balance transfer cards are only good for moving existing debt, not new borrowing or everyday spend," says Griffiths.
"Consider how long you need to pay down your balance, and if you don’t need 20 months, you may save more money by going for a shorter 0 per cent deal with a lower balance transfer fee."
Alternatively, look for a card that offers a long dual period on both purchases and balance transfers.
For example, the Halifax all-in-one card offers 13 months interest-free on both purchases and transfers.
Check out the revert-to rate
You also need to check the “revert-to” rate once the promotional deal on a balance transfer card ends, as these rates remain stubbornly high.
If you fail to clear your balance before the introductory period expires, the cost of borrowing could shoot up.
With Barclaycard, for example, there is a rate of 17.5 per cent once the 20-month interest-free deal comes to an end.
For the 19-month deals, the revert-to rate is 16.7 per cent with MBNA, 16.8 per cent with Virgin Money, and 16.9 per cent with Barclaycard.
The best way to avoid going onto the “revert-to” rate is by paying off as much as your debt as possible, rather than make just the minimum payment each month.
Long life-of-balance
If you need longer to repay a debt, or don’t want to keep switching, you can choose from a host of cards offering low rates for the life of the balance.
MBNA, for example, is charging just 5.9 per cent on its Rate for Life Visa card.
Providers remain selective
Crucially, despite the growing number of competitive credit card deals now available, you shouldn’t automatically assume you will get the deal you want.
Card providers remain risk averse, and selective about who they will lend to, only accepting applicants with blemish-free credit records.
Equally, since the Consumer Credit Directive came into effect in February this year, lenders can now be more selective, as they only have to offer the best deals to 51 per cent of successful applicants, compared to two-thirds previously.
