Make the most of balance transfer deals while they last

By Marianne Curphey

If you have debt that you want to clear and possess a reasonably good credit record, a balance transfer card may be a good choice for you. It can give you breathing room while you pay off that debt interest-free.

Now is the time to act. Competition between credit card providers has provoked a "balance transfer war".

Experts predict that there is unlikely to be an interest rate rise until the end of this year, or spring next year. When interest rates do rise, some of these very good deals will likely be phased out, says Andrew Hagger, personal finance commentator and founder of MoneyComms, a personal finance advice site.

balance-transfer-war

But before you apply, ask yourself a couple of questions:

1. What will you use it for?
To make the most of these cards, you'll need a clear idea about how you are going to use the card: just to pay off existing debt, or to pay for new purchases as well? Do you have a large sum to transfer?

It's important to work out the maths for your personal situation before you apply for a card, because you need to know which factors will work out cheapest for you. For instance, should you prioritise a longer balance transfer period, a lower transfer fee or a lower purchase rate?

"People are turning to balance transfer cards to ease the burden of debt
and the rise in everyday expenses," says David Mann, head of banking at uSwitch, a price comparison service site.

If that's your case, you may want to consider a card that offers a longer 0%-interest period on purchases, even if it means a shorter balance-transfer deal. 

David Mann of USwitch suggests being clear about whether you really need an extended period.

"Ask yourself, could I pay off the balance within 23 months and save 2% or 3% on the transfer charge as a result?" Mann says.

Need a long balance transfer period for a large amount, but also plan to use the card for new purchases? Look at something like the Halifax low fee balance transfer offer card, which has a 1.13% transfer fee, and 0% on purchases for 12 months.

"In general, I would suggest people go for a lower balance-transfer period and smaller balance-transfer fee, but no one card is right for everyone," Mann says.

2. Do you have a solid repayment plan?
"A very small percentage of people go into these deals with a good management plan and their eyes wide open," says Wilma Allan, money counsellor and founder of the Money Midwife, a financial advice website. "Whether this type of deal will work for you depends on the type of person you are and how you handle money."

You should have a plan to pay off the debt over the interest-free period, and budget around that. Without a plan, you could find yourself having to transfer the balance to another card after your 0% period is over.

"If you do that a lot, credit card companies might start to notice you and then decrease the sum that you can transfer, or increase the ... balance transfer fee," Allan explains.

In addition, if you miss a payment or exceed your credit limit, you could end up paying the standard variable rate, which could be between 18% and 19% APR.

Finally, if you are successful in securing one of these deals, make sure you use it to your advantage.

"Use 0% deals to make real inroads into your outstanding balance," Hagger says. "If you are only making the minimum payment each month, then that is going to be a wasted opportunity."

See related: 4 tips for avoiding balance-transfer traps, Many applicants denied best balance transfer deals

Published: 31 March 2015