Being in debt is bad enough - without the hefty interest charges that usually come attached. If you’re paying interest on credit card debt, you may feel like you’re doing nothing more than treading water, paying off the interest every month without being able to tackle the amount you originally borrowed.
And with the average credit card’s annual percentage rate (APR) now sitting at around 19%, it’s very easy to get drawn into a whirlpool of ever-increasing debt.
That’s why it’s important to act straight away to cut the amount of credit card interest you have to pay.
0% balance transfers
0% balance transfer credit cards have become very popular in the last decade. As the name suggests, these cards allow you to transfer debts from other credit cards onto them.
They will then charge you no interest on those debts, for as long as the 0% period lasts.
Need to know
If you’re currently paying interest on credit card debt, it could make real financial sense to apply for a 0% balance transfer card, and shift your debts across.
However, these cards aren’t right for everyone, and there are several things you should bear in mind.
Most 0% balance transfer cards charge transfer fees - typically around 3% of the debt you’re moving.
So for example, if you’re transferring £1,000 of debt, you’re likely to be charged a transfer fee of around £30.
This doesn’t necessarily mean the card is bad value (the transfer fee may well be far less than the interest you would otherwise have had to pay) but it’s important to understand that this sort of transfer isn’t completely free.
A short-term solution
The interest-free periods offered by 0% balance transfer cards don’t last forever. At the time of writing, the longest interest-free period (offered by two cards) lasts for 22 months.
You need to make sure you can clear the full balance on the card before the 0% period ends, as a high rate of interest will then start to apply.
If you’re not confident you’ll be able to clear your debt within the 0% timescale, think about taking out a long-term, low rate balance transfer card instead.
Sometimes known as ‘lifetime’ balance transfer cards, several of these now offer low rates on transferred credit card debt for as long as it takes you to clear your balance.
Your credit rating
Finally, 0% balance transfer cards are usually only offered to people with excellent credit ratings.
If you apply and are repeatedly rejected for credit cards, you could damage your credit score further. That’s why it’s really important to find out where you stand before you make an application.
Several credit rating agencies will help you find out what your credit score is. And you can currently do it for free with Experian, with this 30 day free trial.
If you don’t want to start paying to use their services, just make sure you cancel your subscription before the 30 days are up.
Find a 0% card
If you do decide to cut your interest bill using a balance transfer card, make sure you do your research carefully. Good online financial comparison tables will list the best 0% and low rate balance transfer cards on offer.
It’s a good idea to check a couple of different sites, as the deals offered sometimes vary slightly.