What is a 'life of balance transfer' card?

By Michael Lloyd and Benjamin Salisbury

life-of-balance-transfer

There's a "balance transfer war" raging in the UK right now, with credit card issuers offering lengthy 0% periods on balance transfers. Another option, though, is a "life of balance transfer" credit card, offering a low interest rate until the transferred balance is cleared in full.

The problem with 0% balance transfer cards is many Brits end up breaking their contract and losing the benefits of the promotional rate, leaving them paying an even higher interest rate than before they transferred the balance. A 2016 study from The Co-op Bank found that this happened to 20% of people who switched to a 0% balance transfer card in the last five years.

With a life of balance transfer credit card, though, "There are low-rate offers with fixed-rate guarantees for much longer than any 0% deal," Andrew Hagger, founder and director of money information site MoneyComms.co.uk, said in response to emailed questions.

If you have a high balance you need to pay off, or if you fear you can't afford to pay off your balance before the 0% interest period ends, a life of balance transfer credit card might be a more sensible way of dealing with your debt.

"A low-rate card can be a good option for people, particularly if they are looking for a longer-term solution to clearing their debt or making a large purchase," Hagger said.

He compares these offers to fixed-rate mortgages.

"You'll end up paying more than you would have with a 0% card, because there is still some interest, but you'll have the security of knowing the interest you're charged isn't going to rocket," Hagger said.

For instance, AA, Sainsbury's and Tesco offer life of balance transfer credit cards charging 5.85%, 5.9% and 6.05% respectively, all with no balance transfer fee.

When a low-rate card might trump a 0% balance transfer offer
If you know without a doubt that you can clear your balance by the end of a 0% balance transfer period, then that's going to be your best option. But if there's any uncertainty, a card with a low rate for the life of your balance transfer might be safer.

Even though some 0% balance transfer offers last about 3.5 years, for some people with high balances or who are struggling with other bills, that may not be long enough.

Also, three years is a long time for you, the cardholder, to remember when the 0% offer expires. It's enough time, too, for you to get lax and miss payments or pay late, which can negate the promotional deal and leave you paying very high interest.

If you have any reservations about clearing your balance in time, a life of balance transfer offer is a smarter option.

Additionally, most life of balance transfer cards don't charge a transfer fee. Some 0% balance transfer cards charge a fee of around 3% of the balance you're moving, which could amount to a significant sum.

Taking out a life of balance transfer card also allows you to set up a direct debit and essentially forget about your debt until it's paid off, meaning no missed or late payments and no worrying about remembering to log onto your account to pay your bill.

Other low-rate options
You may also see other low-rate offers that are neither life of balance transfer cards, nor are they 0% balance transfer cards, such as MBNA's credit card that offers a 4.9% fixed APR for five years on any purchases or transfers made within the first 60 days. This card has a 0.5% one-off fee.

If you are transferring less than £7,500 and you are certain you can pay off the balance within five years, the MBNA card works out to be a cheaper option than life of balance transfer cards, even with the small fee. However, that still leaves you open to the risk of not being able to repay in full in 60 months and having to revert to a higher interest rate.

For balances above £7,500, the AA, Sainsbury's and Tesco cards are cheaper in the long run, and, because you have the lower rate for the whole period, they carry less risk.

Life of balance transfer cards versus card tarting
Of course, you could try "card tarting", in which you continuously move your balance from card to card to take advantage of 0% introductory offers. However, this practise isn't recommended by experts.

First, it's not a long-term solution to your debt problems, but rather a series of quick bandage fixes, which isn't the wisest way to handle debt.

Another major problem with card tarting is that eventually you might not qualify for new offers because by repeatedly moving cards, you might weaken your credit score. Since 0% cards are typically only available to borrowers with decent credit, there could come a time when you are not accepted for the best deals.

Even if your credit profile stays in good shape, you might be left high and dry if card issuers suddenly decide to tighten their lending criteria. This happened after the global financial crash of 2008, leaving many borrowers with credit unable to quality for new balance transfer offers.

The bottom line is that card tarting is not for everyone.

"Some people don't want the hassle of switching balances from card to card, having to remember to do so and incurring balance transfer fees and an entry on their credit record," Hagger said. "They prefer a simple, good value, low rate offer and to keep that same card for many years."

Getting a life of balance transfer card
If you're interested in taking out a life of balance transfer card, speak to one of your current lenders first. Many card issuers now offer existing customers balance transfer deals. This means you might be able to secure a life of balance transfer offer without having to make a fresh credit application.

You don't need a perfect credit score to qualify for a life of balance transfer card. As with any credit card, the better your credit score, the more likely you are to get the best deal. If your credit score and income are below average, there may be limits on the amount you can transfer, but it is harder to secure the best 0% balance transfer cards than it is most life of balance transfer cards.

Everyone wants to pay their debts interest-free. But when you can't secure a 0% deal or when you're struggling with more than one debt, a low-interest card is easier to secure and comes with the guarantee that your rate won't change, leaving you in a lurch.

See related: How 'no-consequences' credit can lure you to debt, With long 0% balance transfer deals, one strike, you're out, 5 ways to avoid pitfalls of credit card money transfers

Published: 14 March 2017