Getting the Best out of Balance Transfers

Balance transfers are nowhere near as popular as they once were. The introduction of balance transfer fees a few years ago means that it's no longer possible to shift your debt around from card to card for free, taking advantage of 0% introductory periods to avoid indefinitely paying any interest on your debt.

This doesn't mean, however, that balance transfers are no longer worthwhile. Although the fees charged make the long term avoidance of interest a more expensive proposition than it once was, if you take a little care over your use of the facility you can still come out heavily on top compared to leaving your debt on an 'ordinary' card and paying standard rates of interest. But what do you need to consider when choosing a new balance transfer card?

Balance Transfer Fee

Although fees are now more or less ubiquitous, it still pays to shop around. Generally, the level of the fee will be somewhere between 2% and 3%, and clearly the lower the percentage the better. This isn't the end of the story though. When fees were first introduced, they usually had an upper limit to the charge of around £50 or so. Over time, these limits were withdrawn, meaning that the fees could quickly become fairly substantial for larger balances.

If you're transferring a larger balance, you may well be better off going for a card that charges 3% but has a limit to the total charge, rather than a 2% fee with no upper limit - you need to work the figures out for yourself to see which has the lower overall cost.

0% Introductory Period

Originally, the vast majority of balance transfer cards had a 0% period of 6 months. Over the years, this has steadily increased. Nowadays, 9 months is probably the minimum you should expect, with 12 months becoming increaingly common, and some cards stretching out to 15 months. Obviously, the longer this period lasts the better, but make sure you know when interest will start being charged so that you have plenty of time to arrange a transfer to a new card if that's what you want to do.

Using Your Card

Once you have your card, there are a couple of things to bear in mind when using it. Firstly, you should never mix purchases and balance transfers - your balance caused by transfers will be paid off before any balance caused by purchases, so even if you increase your monthly repayment to cover the cost of whatever you've bought, you'll still pay interest on it every month until your balance transfer is fully cleared. Be strict with yourself and use a different card with hopefully a better APR for anything you buy. Best of all, get a card with an introductory 0% deal on purchases and use that for all your spending.

Secondly, although it's tempting to let your debt sit on your card and only make the minimum repayments asked for on your statement, this is a waste of an opportunity.

The lack of interest being charged on your debt means that 100% of your repayments go towards lowering your balance, meaning your payments are much more powerful. Use this fact to try and clear as much of your debt as you can, as aiming to be debt free eventually is the only sensible long term strategy.