It's a good time of year to take a serious look at our finances, particularly as the post-Christmas credit card bills are due to hit the doormat in the next couple of weeks.
Switching your card balances to a 0 per cent deal can help you clear your balances more quickly and cheaply.
Credit card companies are eager to lend to creditworthy customers: HSBC, MBNA and Barclaycard all launched new offers in the last fortnight. If you're thinking of moving to an interest-free card, this guide will help you avoid some of the pitfalls.
1. Double check how much you owe – refer to your latest statement but don't forget to include any additional purchases or payments you've made since then – if in any doubt give your card provider a call to confirm.
2. Use an online calculator to see what you'll save by switching to a 0 per cent card – check the UK Cards association or Money Advice Service.
3. Work out how much you can comfortably afford to pay back each month – ensure it is manageable within your 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. Be aware the longest 0 per cent term may not be the cheapest. As a rule of thumb, the longer the 0 per cent deal the more expensive the balance transfer fee, so don't opt for 34 or 35 months if you know you can clear your debt sooner – for example Santander 123 offers 23 months with no balance transfer fee.
5. You can't transfer card debts between certain credit cards – eg MBNA and Virgin Money, existing Barclaycard balances to a new Barclaycard and no transfers between First Direct/HSBC/M&S or John Lewis credit cards, as they are all part of the same group.
6. Find out if you are eligible for the card without a footprint being made on your credit record – Moneysaving Expert offers the pre eligibility function on its website. Also some providers allow you to make a soft search as part of the initial application, including Fluid, Nationwide Building Society and MBNA. It's better to know it upfront rather than go through a 20 to 30 minute application process regist ered on your credit record, only to find that your application is declined.
7. Ensure you make your balance transfer(s) within the timescale permitted – some card companies ask that balance transfers are made within 60 to 90 days of the date the account is opened.
8. Don't give your card provider an excuse to cancel your 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 interest-free deal will be terminated immediately.
9. Three key reasons to close down your old card account(s): (a) It removes the temptation to run up balances in the future. (b) Cards with a zero balance will still be taken into account on your credit record as the credit limit on each card is considered as borrowing available for you to use. (c) If you destroy the card without closing the account, there is a security risk. If you move home and forget to tell the credit card company a new card would be sent to your old address at the expiry date.
10. Keep tabs on your new card balance and make a diary note for 2 months before your 0 per cent deal ends to give you time to switch again if you know the balance isn't going to be fully repaid by the time your promotional rate comes to an end.
Andrew Hagger is an independent personal finance analyst from www.moneycomms.co.uk