HomeBusinessBalance transfer credit cards to help you clear debt more cheaply

Balance transfer credit cards to help you clear debt more cheaply


Those with credit card debt who are also feeling the pressure from rising energy, fuel and food bills may benefit from the resurgence of balance transfer credit deals. 

Balance transfer credit cards are making a comeback, with the average interest-free period now the longest it has been in four years.

As long as borrowers keep up with payments and stick by conditions they can use these to clear debts with no interest, instead of typical credit card rates of 25 to 30 per cent interest. 

The average interest-free balance transfer term on credit cards rose to 602 days in March, according to Moneyfacts, up from 577 days in December.

For those with credit card debts hanging over them, the costs of extortionate interest payments can really begin to mount up.

For those with credit card debts hanging over them, the costs of extortionate interest payments can really begin to mount up.

A balance transfer credit card allows a customer to transfer multiple credit card debts over to a new card.

This means they pay interest on one account rather than several, but balance transfer cards also often come with the promise of 0 per cent interest for a fixed period of time.

With the cost of living crisis beginning to take hold, an increasing number of Britons may have been forced to rely on credit to get by.

But expensive credit card interest rates mean that many will only just be meeting monthly payments rather than working fully towards clearing debt. This is where switching to a 0 per cent deal and getting a plan together to pay it off can help. 

Almost four in five Britons say they have experienced price hikes since the beginning of the year, leading households to rack up £4.7 billion in debts, according to research by credit broker, Credit Karma.

It also found that rising living costs have prompted one in five Britons to take out credit cards, loans and overdrafts in the last three months.  

Some of the steepest hikes have been on household energy bills. The price cap for an average household will rise from £1,277 to £1,971 from 1 April,  and analysts at Cornwall Insight now predict another 47 per cent rise in the price cap from October. This would take the energy price cap to £2,900.

This could result in a debt crisis, according to Credit Karma, with four in five of those who have borrowed money to counter the rising cost of bills fearing they won’t be able to meet repayments.

For borrowers struggling to keep up with credit card repayments, a balance transfer card could be part of the solution.

However, they should think about whether they are likely to be accepted for the card before applying, as being turned down or making too many applications could impact their credit score (see ‘Will you be accepted for a balance transfer credit card’ below). 

Although the number of balance transfer deals remains lower than prior to the pandemic, the 69 currently available is the highest recorded since April 2020.

The fees charged when transferring debt over to one of these credit cards are also falling, according to Moneyfacts.

The average balance transfer fee is now 1.95 per cent, down from 2.23 per cent a year ago. This is the lowest recorded average since October 2006 when it was 1.82 per cent.

Balance Transfer credit cards can help people manage their finances by allowing them to consolidate debts and save money on existing card balances

Balance Transfer credit cards can help people manage their finances by allowing them to consolidate debts and save money on existing card balances

The Money Charity estimates that UK households have an average credit card debt of around £2,112, whilst Moneyfacts states that the average credit card APR now stands at 26.4 per cent.

Using a 0 per cent balance transfer card, the average credit card debt could in theory be cleared in one year if £176 was paid off each month without interest being applied.

Paying off the same amount of debt over a 12 month period on an interest-charging credit card would cost an additional £302 in interest, based on the average APR. 

Rachel Springall, finance expert at Moneyfacts said: ‘The credit card market has had to adapt to economic uncertainties and, as we mark two years on since the first UK lockdown, the latest movements on balance transfer cards are welcome news for consumers looking to move their debts interest-free.

‘The growth in choice is also encouraging since we saw the number of deals fall to a record low during July-August 2020. 

‘As the cost of living rises, consumers may be tempted to reduce their credit card repayments and, while this is a nice flexible feature to have in times of need, it’s imperative borrowers are mindful of their debts, any interest-free deal that may be coming to an end, and switch if they want to avoid incurring interest.’

Will you be accepted for a balance transfer credit card?  

Being approved for a balance transfer card is by no means guaranteed.

In theory, those with the best credit ratings are the most likely to be approved for a card as they will have a history of paying off debt on time. 

It is more likely that those with poor credit ratings will be rejected, or be given less attractive terms such as a higher interest rate or shorter interest-free period.

Those who are refused should bear in mind that applying for a number of other balance transfer cards in a short space of time will worsen their credit rating.

Many card providers will not allow you to transfer balances from another of their own products, so you should identify the best deal for you outside of your existing provider before making an application.

Some providers may only accept your application if you already hold a current account with them.

There are other restrictions such as having a minimum level of income – generally between £10,000 and £20,000.

To take advantage of introductory 0 per cent offers, you may have to transfer your balance within a specified time frame. 

Most credit card providers increase handling fees after the first 60 or 90 days.

What are the best balance transfer deals?

One provider to make a notable change to its balance transfer offer last month was Sainsbury’s Bank, which increased the interest-free period by one month to 24 months. Subject to eligibility it is also possible to secure a 32 month interest free offer

Santander also increased its own interest-free offer to 21 months, up from 18 months, on its fee-free deal.

For those seeking out the longest interest free period possible, MBNA’s 33 Month Balance Transfer Card is the lengthiest deal on the market.

However, it does come with a 2.69 per cent fee, which means borrowers may be able to find cheaper options if they were prepared to compromise on the length of the 0 per cent period.

An cheaper alternative could be Virgin Money’s 28-month balance transfer deal, which comes with a 1 per cent balance transfer fee.

The lengthiest term may not always be the wisest option, particularly if a deal with no fees gives you ample time to clear the debt.

For those looking for the longest interest free period without a transfer fee, Natwest and RBS are offering a 0 per cent deal for up to 22 months.

Santander’s 21 month balance transfer credit card also offers a 0 per cent balance transfer period of up to 21 months, with no fee for transferring.

Is a balance transfer card right for you?

If you’re able to clear your debts within a couple of months, then a balance transfer card may not be the best option.

Balance transfer cards rarely come with any additional perks such as cashback or rewards, for example.

If you’re looking for a credit card that will reward your everyday spending or give you points to put towards your next flight, for example, then you may prefer to read our recent round up of the best credit cards.

However, for those with a large amount of credit card debt, a balance transfer deal could be a no-brainer.

You can usually transfer up to 90 or 95 per cent of your new card’s credit limit.

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