Deal with your debts the simple way
The credit crunch has forced many of us to face up to tough financial realties, cut back our spending and deal with old debts.
According to Credit Action, the rate at which personal debt is growing has slowed significantly since last year. This means many sensible Brits are now concentrating on clearing their credit cards, rather than spending on them.
Shifting what you owe on pricey plastic or expensive personal loans to a new balance transfer credit card is one of the cheapest and most effective ways of beating down old balances.
However, no one card will suit every borrower, and it’s crucial you pick the right deal for you.
Are 0% deals always the best option?
Reducing the amount of interest you pay each month on your debts means they will cost you less in the long run, and will enable you to pay them off more quickly.
Therefore, you might find it tempting to go for a credit card that offers a 0% interest rate for a fixed period of time. Eliminating interest entirely means all of your repayments will go towards what you owe instead of the interest charged on your balance.
The Virgin Money Credit Card currently has the longest 0% deal on the market, offering 0% interest for 16 months.
Sadly, no 0% deal will last forever. If you fail to clear your balance in full before the introductory offer finishes, you could end up hit by a much higher rate of interest.
What’s more, with 0% cards harder to come by since the credit crunch, it’s a risky business to rely on shifting your outstanding balance to another 0% offer when your initial deal runs out.
Slow and steady wins the race
If you know there is no realistic way for you to pay off your debt within the interest free period a 0% card could provide, you may be better off opting for a card with a long term low rate deal.
Unlike with a 0% deal, this will mean paying some interest on your debts each month. However, choosing a card with a long term deal means you can lock in at an affordable interest rate for a prolonged period of time.
Some lenders issue ‘lifetime balance transfer’ cards, which offer borrowers credit at a manageable level of interest for as long as it takes them to clear their whole debt.
My top picks
Here are my favourite long term, low rate deals:
| Provider | Interest Rate | Duration | Transfer Fee |
| Barclaycard Simplicity Visa | 6.8% Fixed | Until balance is cleared | 0% (provided you shift your debt within 60 days of opening the card) |
| Capital One Platinum | 6.9% Fixed | 1 January 2012 | 0% |
| Citi Platinum Mastercard | 6.9% Fixed | Until balance is cleared | 2.5% on each balance transfer within the first 90 days (3% thereafter) |
| Natwest Classic Credit Card | 8.9% Fixed | Until balance is cleared | 0% |
| Capital One Platinum | 9.9% Fixed | 1 August 2012 | 0% |
The cheapest lifetime balance transfer rate on the market right now comes from Barclaycard. Its Simplicity Visa offers a rate of 6.8%, although it’s worth noting that if you transfer any balance over £5,000 the rate increases to 6.9%.
If you already have a Barclaycard, you won’t be eligible to use this deal. In this case, your cheapest rate comes from Capital One’s Platinum card, which charges 6.9% on balance transfers until 1 January 2012.
How to choose the best deal
When it comes to choosing the right long term deal, it’s important to look beyond the interest rates on offer and ask yourself the following questions:
• Where are my existing debts?
Rule out applying for cards from lenders with whom you have existing debts. For example, if you already have a card from Capital One, you’re unlikely to be accepted for its balance transfer card.
• Is my credit rating strong enough?
Since the credit crunch, companies are much pickier about who they will lend to and market leading products are often reserved for people with excellent credit scores. Remember, each time you apply for new credit you leave a footprint on your file – so it’s unwise to apply for a product you aren’t reasonably confident you’ll get.
• Is there a transfer fee?
Some lenders may charge you for the privilege of switching your debt over to them. If the cheapest deal available to you charges a transfer fee, make sure you do the maths and ensure it wouldn’t cost you less to go for a fee-free offer with a higher rate.
• How long does the offer last?
Long term deals are not always lifetime deals, so always check to see how long an offer lasts for. You don’t want to get caught out paying a higher level of interest if you have not cleared your balance when the offer expires.
A word of caution
The key to paying off a lifetime balance transfer is not to spend on it. If you do, you could be caught in costly trap known as negative payment hierarchy.
If you don’t trust yourself not to spend on your balance transfer card, it may be wise to set up a direct debit for regular repayments, remove it from your wallet and lock it in a drawer somewhere.
Alternatively, if you’d prefer to repay your debt over a set period in a more structured way, you could use a personal loan.
Ditch that debt
While long term balance transfer cards won’t let you escape interest payments altogether, one of these cards may be the solution to your debt stress – especially if you’ve grown tired of transferring debt around every time a promotional offer ends.
However, if you do decide to go for a long term deal, don’t be tempted to start paying back less each month just because you’re now paying a lower level of interest.
Remember, repaying your debt as quickly as possible is always the best way to avoid handing over any more of your hard earned cash than you absolutely have to.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
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