Martin Lewis at MoneySavingExpert has written an updated guide to credit card balance transfer, including suggestions for cards suitable for people with bad credit.
What Is a Balance Transfer Credit Card?
A balance transfer credit card lets you move your existing credit card debt to a new card, but with a big advantage – you pay 0% interest on the transferred amount for a set period. This period could be as long as 30 months, during which you don’t pay any interest on the transferred balance.
How Does It Help?
- Savings on Interest: You save money by not paying the interest on the debt for the 0% period. This allows you to pay off your debt faster since more of your repayments go towards reducing the actual debt, not just paying interest.
- Shift from Expensive Cards: If you’re paying high interest on one or more cards, you can shift that debt to a balance transfer card with 0% interest.
Picking the Right Balance Transfer Card
- Not from the Same Bank: You can’t transfer between cards from the same bank or group.
- Check Eligibility: Use eligibility calculators to see what cards you might qualify for. Look for cards that fit your needs without impacting your credit score.
- Lowest Fee: If you’re sure about how long it’ll take you to repay the debt, go for the card with the lowest fee within that period.
The Five Golden Rules
- Clear the Balance Before 0% Ends: Aim to pay off the transferred amount before the 0% interest period ends to avoid higher interest rates later. If needed, consider transferring again to another 0% offer.
- Pay More Than the Minimum: Always pay more than the minimum monthly payment to avoid penalties.
- Beware of Other Charges: The 0% interest usually only applies to the transferred balance. Other activities like spending or withdrawing cash will probably have charges and interest.
- Look for Special Cards if Needed: If you also need to spend, consider cards that offer 0% on balance transfers and spending.
- Understand the 0% Period Timing: Know your card’s time limit for the 0% offer and be aware of any fees on later transfers.
Applying for a Balance Transfer Card
- Use Eligibility Calculators: To find out your chances without affecting your credit report.
- Consider Your Credit Situation: Even with bad credit, there may be options, though you must be careful with the rates after the 0% period.
Strategy for Multiple Debts
If you have multiple credit cards with varying rates, a systematic approach called the “credit card shuffle” can help:
- List All Your Debts: Understand where you stand.
- Check for Special Offers: Sometimes, your current cards might have special deals.
- Shift Debts to the Cheapest Card: Move debts around to get the best rates.
- Repay the Most Expensive Debts First: Focus on paying off the highest-rate debt first, then move to the next.
Conclusion
Balance transfer credit cards offer a valuable opportunity to save on interest and clear debt faster. By choosing the right card, understanding the rules, and possibly employing a strategy like the credit card shuffle, you can substantially reduce your debt.
However, it’s crucial to approach this with care, understanding all terms and commitments, and ideally seeking professional advice if needed, as mistakes can lead to additional costs. If used wisely, balance transfer credit cards can be a powerful tool in managing and reducing credit card debt.