Credit cards Updated:
Are you thinking about taking the plunge with a balance transfer credit card this year? If so, you're not alone, with research from Sainsbury's Bank revealing that 14% of those surveyed – equating to around 7 million consumers – are considering transferring a credit card balance in 2016, and if they go about it the right way, it could be a wise move.
Given that the average outstanding credit card balance stands at £2,347, it could pay to transfer the balance to a card with a 0% interest deal. Just think of how much interest you'll be paying on that kind of balance otherwise! If you only made the minimum repayments, it could become increasingly hard to stay on top of things, with the addition of monthly interest undoing a lot of your hard work.
However, with a balance transfer credit card, you needn't worry. You'll still have a balance transfer fee to pay – typically up to 3% of the amount transferred – but it'll work out far cheaper than interest, and you'll have plenty of time (over four years in some cases) to repay the balance in full.
For many people, this is far preferable, and will be particularly beneficial at this time of year following the excess of Christmas. Perhaps it's no wonder, then, that January is the busiest month for balance transfer card applications, followed closely by February and March, as people look to give their finances a spring clean.
It could be a great time to get in on the action, too, with our own figures showing that average balance transfer terms have hit new records, while the fees associated with them continue to fall! This means that you've got longer than ever before to pay off your debt without interest adding to the bill, and you may not have to pay a high fee for the privilege, either.
However, there's more to do than simply apply and hope for the best. You should start the process by making sure that your credit score is as spotless as possible (ideally by using a credit check provider such as Experian), and if you've been successful in your application, you need to actually transfer the balance!
Sainsbury's Bank's figures went on to reveal that only 48% of card holders transfer a balance in the first month of the account being open, while 24% transfer the balance in month two, but this means that a large proportion could be failing to take full advantage of the interest-free offer.
"Transferring a credit card balance can be an excellent way of paying down debt and organising finances if managed properly," said Simon Ranson, head of Banking at Sainsbury's Bank, "and January, just after the Christmas period, is a popular time to do this.
"However, we'd urge people who have set up a balance transfer card to move their balances quickly to save paying unnecessary interest. By not transferring their balances straight away, card holders could potentially still be incurring interest with their old credit card provider(s).
"We'd [also] encourage card holders to pay off as much as they can each month rather than just making the minimum payment, as this will make a huge difference in paying down the outstanding balance."
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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