One popular resolution for many of us this year is to sort out our debts. More than 2.8 million people will transfer their credit-card debt this year, says high-street bank Santander. The good news is that, with a wide range of interest-free balance-transfer deals available, now is a great time to be cutting the cost of your debt.
A couple of years ago, decent balance-transfer deals all but disappeared as the banks reined in their lending. In effect, you could only get a decent balance transfer deal if you didn’t actually have much of a balance to move. But now lenders are starting to pitch for your debt once again. Barclaycard is offering 17 months interest free, while MBNA, Virgin and Natwest all offer 16 months. So which should you go for?
Firstly, think about how likely you are to be accepted for the best balance-transfer deal. If you’ve got substantial debts across several cards, or have missed minimum payments in the past, you probably won’t qualify for the very best deals. Luckily, you can check which credit cards are likely to accept you without having to apply to them (this is worth doing, as if you apply and are rejected it appears on your credit record and could affect other applications).
Moneysupermarket.com has a free ‘Smart Search’ facility where you fill in a form giving details about yourself and your debt, and they bring up a list of the best credit cards available for you in order of likely acceptance. You can use those results to work out which card to apply for. If you have a poor credit record and won’t get accepted for any of the interest-free deals, then go for a low-interest, life-of-balance card instead. The best on offer at the moment is the Barclaycard Platinum Simplicity card, which has a rate of 6.8%.
Once you have your new credit card, set up a direct debit to pay it off. You should at least set one up for the minimum payment to ensure you aren’t hit by any penalties. But remember to make regular payments on top to clear the card – if you only pay the minimum each month it will take you ages to clear the debt. A better bet is to work out how much you need to pay each month in order to clear the debt before the 0% deal runs out, and set up a direct debit for that amount.
Finally, make sure you read the small print. A great deal will quickly cease to be one if it turns out that you’re paying an annual fee, or will incur a charge for not spending on the card. Also make sure you know what the interest rate will rise to once the 0% period is over. If you know you won’t have cleared your debt by then, then set yourself a reminder that you will need to move your debt to a new 0% deal.