The post-Christmas credit card bills will hit the doormat in the next couple of weeks. Instead of fretting about how you’re going to pay those bills, switch your balances to a 0 per cent deal to help you clear your debt more quickly and cheaply.
Card companies are eager to lend to creditworthy customers, with Tesco Bank, MBNA and Barclaycard all launching new offers in the last fortnight, for up to 30 months. But before you move your balance to an interest-fee card, you need to be wary of the potential pitfalls, so draw up a 10-point checklist.
1. Check how much you owe – look at your latest statement and don’t forget to include any additional spending since then. If in any doubt, call your card provider to confirm.
2. Use an online calculator to see what you’ll save by switching to a 0 per cent card – such as the UK Cards Association or Money Advice Service
3. Work out how much you can comfortably afford to pay back each month – make sure this is manageable within your monthly budget. Divide your outstanding balance(s) by the amount you can afford monthly – then you know how long a 0 per cent term you need.
4. The longest 0 per cent term may not be the cheapest. As a rule of thumb, the longer the 0 per cent promotional deal, the more expensive the balance transfer fee. So don’t opt for 29 or 30 months if you know you can clear your debt much sooner.
5. You can’t transfer plastic debts between certain credit cards, such as MBNA and Virgin Money. Existing Barclaycard balances cannot be switched to a new Barclaycard, and no transfers are allowed between First Direct, HSBC, M&S and John Lewis credit cards as they are all part of the same group.
6. Check if you are eligible for the card without a footprint having been made on your credit record. MoneySavingExpert offers a function on its website to help you find this out. Also, some card companies allow you to make a “soft search” as part of the initial application, including Fluid, Nationwide and MBNA. It’s better to know this upfront rather than go through a long application process, which is registered on your credit record, only to be declined.
7. Ensure you make your balance transfer(s) within the limited timescale permitted. Some card providers request that balance transfers are made within 60 to 90 days of the date your card account is opened.
8. Don’t give your provider an excuse to cancel the 0 per cent rate; set up a direct debit to make the minimum payment each month (you are free to make extra payments on top of this). Otherwise, if you’re late with a payment or exceed your credit limit, your 0 per cent deal will be terminated immediately and you will be faced with paying a high interest rate and be back to square one.
9. There are three reasons for closing down old card accounts: it removes the temptation to run up balances on the card(s) in the future; cards with a zero balance will still be taken into account on your credit record as the credit limit on each card will be seen as borrowing available for you to use; and if you just destroy the card without closing the account, there is a security risk –if you were to move home and forget to advise the card company, a new card would be posted to the old address at the expiry date.
10. Keep tabs on your new card balance and make a diary note for two months before the 0 per cent deal expires. This gives you time to switch again if you know that the balance isn’t going to be repaid fully by the time your promotional rate comes to an end.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk