High-interest debt is a common problem, especially on maxed out credit cards, a balance transfer card can reduce interest charges.
Credit card debts can quickly build up, especially on 0% interest purchase cards, but when the 0% period expires the debts on these cards will start rocketing up due to interest charges anywhere between 11 and 36%.
However, many people will only pay the minimum on their cards, delaying repaying their debts, accruing more interest in the process.
This is where credit card with a good balance transfer offer can come in handy because you can use it to diminish your high-interest debt faster, and you can also save money in the process.
If you have debt on a credit card enter your details in our calculator to see what you could save:
However, like with any financial tool, it’s easy to make mistakes. So, if you want to reduce debt with a balance transfer credit card, keep the following tips in mind.
For an explanation of how credit card interest rates work read our dedicated guide first.
Check the fine print
As is the case with many offers, some 0% interest balance transfer offers may not be as good as their advertising implies, so make sure to read the fine print.
Some unscrupulous lenders rely on the fact that many people fail to read fine print, ending up paying a lot more than they expected. So, make sure you check all the details, including fees, deadline, and the applicable interest rate after the balance transfer offer expires.
Make sure to compare a range of balance transfer cards down to fine print before applying for one, to get the best deal. Decide whether you want the longest 0% period or lowest fees.
Put pen to paper and work it out
Just because a lender is offering you a 0% APR on balance transfers, it doesn’t mean you’ll actually save money.
There are balance transfer fees to contend with as well as many other variables. So, you need to take some time to work out whether or not the savings are worth it.
If you have only a few hundred pounds in high-interest debt, it might not make sense to resort to a balance transfer. Once you factor in the fees involved, it might simply not make sense.
Conversely, if you have a lot of high-interest debts, you might find it worth transferring your balances not only to take advantage of the attractive rate, but also to consolidate multiple payments into one.
Regardless of the situation you are in, it’s still worth working out the figures to make sure you don’t encounter any nasty surprises along the way.
Plan to pay off your balance transfer as quickly as possible
To capitalise on a balance transfer offer, you need to do everything you can to pay it off within the introductory timeframe, which will maximise your savings.
If this means giving up your daily latte and taking a bagged lunch to work instead of ordering out, then do it. Altering your lifestyle might be difficult, but you need to get your priorities straight, and remember what you are trying to achieve.
You will save money by getting rid of high-interest debt, but you will also become more attractive to lenders, which will make it easier for you to get loans with better terms.
Someone who is capable of efficiently managing their finances and who doesn’t have a ton of maxed out credit cards is a very attractive client to any bank.
A good option is the Barclaycard Platinum with Balance Transfer as it offers a 0 per cent introductory APR on balance transfers for 29 months, and a 0% APR on purchases for six months.
The duration of the introductory offer should be more than sufficient to pay off your balance transfer in full, without having to make significant sacrifices.
One card, one purpose
One trap many people fall into is using their balance transfer credit cards for purchases. You might be wondering what’s wrong with using your card for the purpose it was designed for, and that’s understandable.
What you might not know is, with some lenders, any purchases you make won’t be paid off right away, and will continue to accrue interest at standard purchase rates, even if you make the payment on time.
When you have a balance transfer you are still paying off, any money you pay will go towards paying off the lower-interest debt, while the purchases you charged to your card will continue to accrue interest until your balance transfer is paid in full.
In other words, you could end up offsetting any savings from your balance transfer with purchases you charge to your card.
Get your spending habits in check
No matter how tempting the balance transfer deal is, if you can’t keep your spending in check you’ll end up worse off than before. If you are an impulse shopper, taking out another credit card is not a good idea.
It only gives you another opportunity to max out your credit cards by transferring the balance to the new card. So, only get a balance transfer credit card once you are committed to becoming more financially responsible.
Or, you could remove temptation by cancelling all your other credit cards once you’ve transferred the balance. In fact, this is a good idea in any case.
A balance transfer credit card can be an effective tool to help you get rid of high-interest debt. However, if not used properly, this type of credit card can backfire, and you can end up in even more debt.
As long as you are committed to taking control of your finances and getting out of debt, there’s no reason for you not to make your life easier with a balance transfer credit card.
If you’d like to read more about how to get out of debt then read out top ten tips to get your finances back under control.
- How to spring-clean your finances – Your personal finances are no different to your home, garden or garage – they need a spring clean from time to time.
- How to pay off credit card debt – a step-by-step approach to pay back credit card debt, rebuild your credit score and regain your financial health.
- Managing debt with 0% balance transfer cards – Learn how to manage your debt with a 0% balance transfer credit card