The cheapest way to clear your Christmas debt
If your New Year's resolution is to clear your credit card, switching to a 0% balance transfer deal could help you demolish your debts faster and for less!
For many of us Christmas is the time for overindulgence. We gobble too many mince pies, guzzle too much mulled wine and spend far too much money!
If you used your credit card to cover the cost of Christmas this year, you may now be dreading the delivery of your monthly statement.
However, fear not, there is a way you can help make your debt cheaper and ensure you aren't still paying for this Christmas next Christmas!
Pay 0% interest
Most credit card providers charge a standard interest rate of around 16% APR (typical). With the Bank of England base rate currently at an all time low of 0.5% this means lenders are often charging customers a whopping 32 times the base rate.
However, there is a way you can avoid paying such expensive interest charges.
If you shift your balance onto a 0% balance transfer credit card, you won't have to pay a penny in interest for as long as the deal lasts.
Right now, the Virgin Credit Card currently offers the longest 0% deal on the market, allowing you 16 months breathing space from interest payments.
However, it's vital you clear your debt within the 0% offer period. If you don't, your interest rate will shoot up the lender's unappealing standard rate and your plastic could become pretty pricey very quickly.
A longer lasting deal
If you know it is unlikely you will be able to repay your debt within the strict time constraints of a 0% deal, it may be wise to opt for a long term low rate deal.
Although you will pay a degree of interest on your debt with this type of card, it is likely to be significantly less than the standard rate.
Right now, the cheapest low rate offer on the market is Barclaycard Simplicity Visa, offering customers 6.8% APR. What's more, this deal lasts a lifetime - or as long as it takes you to beat down your balance.
Five facts to remember
If you are considering shifting your debt to a balance transfer credit card, it's important you play by the rules. Here are five crucial things you need to remember.
1. Never spend on a balance transfer card. If you spend on a balance transfer credit card you risk being stung by what's known as negative payment hierarchy. This is where your lender weights your repayments towards your transferred balance, placing your new purchases at the bottom of the payment priority list. As a result, the debt you have built up by spending will be busy accruing hefty interest charges until you've cleared your entire balance transfer!
2. Pay your bill on time. If you fail to pay your credit card bill on time or you exceed your credit limit, not only could you be hit with a nasty fine, your provider has the right to withdraw your promotional deal. It's a good idea to set up a direct debit to ensure you always make at the least the minimum monthly repayment.
3. Balance transfer fees. Be aware that you will probably be charged a one off fee when you move your debt onto a balance transfer card. This is usually around 2 or 3% of the amount transferred.
4. Don't miss your deadline. It is crucial you repay your debt in full before your balance transfer deal expires. If you don't, be aware that your debt will suddenly get a whole lot more expensive.
5. Check your credit rating. Credit card providers are now much stricter about who they will and will not lend to. This means some of the best balance transfer deals around are only available to people with excellent credit scores. It is therefore a sensible idea to check through a copy of your credit rating before you apply for a card.
You can learn more about how these clever cards work in my article 'The beginner's guide to balance transfers'.
**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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