Anyone carrying a balance on a credit card may want to act sooner rather than later.
Money expert Martin Lewis is warning that some of the best interest-free deals for moving existing debt could soon become harder to find. With more than 35 million adults across the UK holding at least one credit card, a change like this could affect a huge number of households. The concern is that interest rates may be about to start climbing again, and when that happens, lenders often become less generous. Here’s what’s going on, how these deals work and what to watch out for if you’re thinking of switching.
Interest rate rises could shake up card deals.
For much of the past year, the top offers for moving credit card debt have barely changed. That might not last. Financial markets are now expecting the Bank of England to raise its base rate as many as four times over the next 12 months, with the first increase possibly arriving as early as next month. Nothing is certain, but it’s enough to make people in the money world sit up.
When the base rate goes up, borrowing tends to get pricier across the board. Card providers might cut the length of their interest-free periods, push up the fees they charge or raise their standard interest rates. Another possibility is harder to notice. Lenders could leave their headline offers looking the same but become much fussier about who they accept, meaning fewer people actually qualify.
How a balance transfer works
A balance transfer means moving debt from one or more credit cards onto a new card that charges 0% interest, or a very low rate, for a set number of months. During that time, every pound you pay goes towards clearing what you owe instead of being swallowed up by interest. That can help you become debt-free much faster than if you stayed put.
It can also make things simpler. If you’ve got balances spread across several cards, combining them into one means you’ve only got a single payment to keep track of each month. For anyone owing a large sum, the savings can be significant, especially when you compare it with the cost of leaving the debt sitting on a card charging full interest.
There are charges that can catch you out.
These deals aren’t completely free. Most come with a one-off transfer fee, worked out as a percentage of the amount you move across. So the bigger your balance, the more you’ll pay upfront. It’s still often far cheaper than months of interest, but you should factor it in when comparing cards.
Once the interest-free period ends, any debt left on the card will start racking up charges at the standard rate. Typical credit card rates in the UK sit at well over 20%, and some are higher still. That’s why these deals work best when you go in with a clear plan to pay off the full amount, or at least move it to another 0% card, before the offer runs out.
How to pick the right deal for you
As a general rule, the best option is the card with the lowest fee that still gives you enough interest-free months to clear your balance. A very long 0% period sounds great, but if it comes with a much higher fee, and you could pay off your debt sooner, you might be paying for time you don’t need.
The deals you’re offered will depend on your credit history and the lender’s own rules. Before applying, use an eligibility checker on a comparison site or a lender’s website. These tools give you an idea of your chances without leaving a mark on your credit file. Applying for lots of cards in quick succession can harm your credit score, so it pays to be selective.
Making the switch is fairly simple.
Once you’ve been accepted for a new card, moving your debt across is usually straightforward. Most providers let you do it through their app or website, often under a section with a name like balance transfer. You’ll normally need the details of the card you’re moving the debt from and the amount you want to transfer.
Some lenders ask you to phone them instead, and they’ll handle the rest from there. Keep paying your old card until you can see the transfer has gone through, as it can take a few days. Missing a payment on the old card while you wait could lead to charges and a black mark on your credit record.
Never miss a monthly payment.
Even on a 0% deal, you’ll still have to pay at least the minimum amount every month. Miss one, and you could be hit with a late fee, and in many cases you’ll lose your interest-free rate altogether. That would leave your whole balance on the standard rate, wiping out the benefit of switching in the first place.
The easiest way to avoid this is to set up a direct debit as soon as you get the card. That way, at least the minimum goes out automatically each month, even if life gets busy or you forget the date. You can always pay extra on top whenever you’ve got some spare cash.
Keep spending off the card.
It’s easy to assume that a 0% card is interest-free for everything, but that’s rarely the case. New purchases and cash withdrawals are usually charged at much higher rates, and using the card for day-to-day shopping can quickly undo the progress you’re making. Taking cash out on a credit card tends to be especially costly.
Try not to think of a balance transfer card as a normal credit card at all. Some people find it helps to leave it at home in a drawer rather than carrying it around, so there’s no temptation to use it. Avoiding any extra borrowing while you’re paying down your debt makes it far more likely you’ll come out the other side debt-free.
Set a plan to clear the debt before the deal ends.
The interest-free period is best seen as a countdown rather than a chance to put off paying. A simple way to stay on track is to divide your total balance by the number of 0% months you’ve got. That gives you a monthly figure to aim for, and if you stick to it, the debt should be cleared by the time the offer ends.
If that sum looks too high, you might need to trim some spending elsewhere or look for a card with a longer interest-free period. Put a reminder in your calendar a couple of months before the deal finishes, so you’ve got time to check where you stand. With rates possibly on the rise, sorting out a transfer now could save you a lot of money over the coming year.
