But a potentially useful financial practice known as rate surfing could help you pay less money on what you've borrowed, as Matt Sanders, credit card expert at Gocompare.com explains: "Rate surfing involves taking your existing debt, searching around for better deals on the market and then transferring it. And with big lenders wheeling out attractive deals in order to entice customers, now might be a great time to do it.
"Switching credit cards is easy – the providers help you along the way and you can usually transfer balances within 60 days of applying for your card, so there is no need to make all of the transfers immediately."
So, wax down your board and read on...
Nailing card charges
If you’ve built up some credit card debt, the chances are you’ll be paying interest on this amount.
The average annual percentage rate (APR) on a credit card is 16.9%, but it can be a lot higher or lower. Of course, if you pay off your balance in full each month, the interest charge won’t kick in.
That’s all well and good for the most disciplined cardholders, but for the rest of us it’s all too easy to rack up some debt on a credit or store card. If this sounds like you, then it might be worth switching provider and taking advantage of the increasing number of attractive balance transfer deals.
The good news is that some now offer interest-free periods of over two years.
Even longer balance transfer deals
Barclaycard and Tesco Bank are battling it out to be top dog in the balance transfer sector. Until this week, both cards came with 0% APR on balance transfers for a whopping 27 months. This means cardholders won’t pay any interest on the amount transferred during that time, providing they keep up with the minimum payments. However, Barclaycard has just extended its 27 month offer to 28 months with a 3.5% fee, and its existing 26 month card to 27 months, with a 2.99% fee, upping the stakes again.
Tesco Bank has one ace up its sleeve, as it offers ClubCard reward points on spending. This is tasty, but Barclaycard’s six-month interest-free period for new spending trumps Tesco’s three-month equivalent and may prove more attractive.
The long-term balance transfer tussle isn’t restricted to these bruisers, as NatWest, the Royal Bank of Scotland and Fluid are all offering 26 months on balance transfers. Halifax is not far behind, offering its longest ever balance-transfer period of 25 months, on balances transferred within the first 90 days.
Nationwide has also just launched its Select credit card, which offers 0% terms for 26 months for a 2.4% balance transfer fee.
"To take advantage of any of these deals, you’ll need a good credit rating," says Gocompare.com's Matt Sanders. "If you’ve missed more than one payment in the last six months, or have a poor credit rating in general, it’s likely to be harder to switch or get the most attractive deals."
Don’t forget the handling fees
Most balance transfer deals come with handling fees, which are usually equal to between 2.5% and 3.5% of the amount transferred.
Barclaycard has a handling fee of 2.99%, so if you transferred £3,000 to the card you’d pay £89.70. Halifax charges 3%, but will later refund a third (so dropping the fee to 2%), while Tesco Bank sets its fee higher at 3.15%.
Fluid is more competitive, setting its transfer fee at 2.85%, subject to a minimum of £3. However, NatWest and the Royal Bank of Scotland charge a 2.65% handling fee on their Platinum credit cards (subject to a minimum of £5). This equates to £79.50 on a balance of £3,000, which is £15 less than if you opted for the Tesco Bank Clubcard Credit Card.
If you’re happy to go for a shorter balance transfer period, of 12 months, Tesco Bank also offers a deal where the handling fee is just 0.9%. With this option, you’d also not be charged any interest on purchases for the first 12 months.
Keep up the minimum payments
These deals seem pretty impressive, but they only work if you make the minimum payment every month. This is usually a percentage of your balance or a cash amount (whichever is greater), for instance 2.5% or £5.
At the very least, you’ll need to pay 1% of the amount owed plus any interest, fees or charges. The key here is to pay more than the minimum if possible, as this will help keep the debt down and give you more wriggle-room if you need to make an emergency purchase at some later stage.
"Remember, if you fail to make the minimum payment you could forfeit the deal and end up being charged interest – which, on a large balance, could cost you more than a pretty penny. It might also harm your credit rating and make it harder for you to switch again," says Gocompare.com's Matt Sanders.
If you’ve built up a large credit or store card debt, say of £7,000, you might not be able to transfer the whole amount onto one card, even if you’ve an excellent credit rating.
The new card provider might set a lower credit limit, depending on your circumstances. If you find yourself in this situation, you could split your borrowings and open two new balance transfer cards (although you’d pay two balance transfer fees).
Another thing to be aware of is that you normally can’t transfer an amount equal to your credit limit. Most cards limit the amount transferred to 95% of the credit limit. This means that if you’re offered a limit of £2,000, you could switch up to £1,900.
New card, new provider
One other thing to bear in mind is that you usually won’t be able to switch between cards from the same or related companies: so moving from a NatWest card to a Royal Bank of Scotland card is out.
Likewise, you can’t hop between cards underwritten by the same provider, so as MBNA issues both Virgin Money’s and Fluid’s credit cards, as well as its own, you wouldn’t be able to switch between these cards.
Keep an eye out for new deals
When all is said and done, the only people who make money out of credit cards are the card providers.
Really savvy credit-card holders know this and are happy to surf the tide of balance transfer deals, zipping from one to the next when their current 0% balance transfer or purchase deal ends. Perhaps the rest of us should consider getting on board…