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By Russell Cavanagh
Staff Writer
1 July 2009
First published 12 November 2008
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Despite much talk of their demise balance transfer credit cards are now more popular than ever.
0% balance transfer credit cards now offer up to a staggering 16 months before repayment in full is required or interest starts to apply.
This can only be a welcome development, particularly for borrowers juggling difficult finances.
However, balance transfer fees have increased and there have been warnings of tougher restrictions on credit card applications so it's more important than ever to get all the information before you apply.
0% balance transfer periods
The Virgin credit card 0% balance transfer period is currently a record-breaking 16 months. Other credit card providers - e.g. MBNA, Egg and HSBC (existing customers only) - are offering between 13 and 15 months on similar products.
This is especially good news for borrowers in search of the best deals. If you need to shift balances around, and in particular move balances from multiple accounts, then longer-term 0% balance transfer credit cards offer a great deal for moving amounts up to the limit the new 0% balance transfer credit card will allow.
Existing Customers Only
However, there have also been restrictions on credit cards which only offer their 0% balance transfer deals to existing customers.
0% balance transfer credit cards from HSBC, RBS and Natwest which all have a 15 month 0% period on balance transfers all underline this point.
There are a few reasons for this. First, banks are more comfortable with their current customers because they know that they are likely to prioritise borrowing commitments with creditors where they have other commitments. Second, signing up existing customers reassures banks that they have a reliable source of financial information on you (i.e.: their own).
Balance transfer fees
Another downside is that balance transfer fees on these credit cards tend to be higher than they were three to four years ago when just 29% of credit cards charged a balance transfer fee.
Now, the vast majority of credit cards charge a percentage fee for transferring a balance over to a 0% credit card, this varies but is usually between 2% and 4% of the balance.
However, although credit card companies have lately seized on transfer fees as an extra way of making money in the majority of cases the money you will save by avoiding higher interest rates will far outweigh the cost of the fee.
This means that, now more than ever, it really pays to do your sums when you compare 0% balance transfer credit card deals.
Long 0% balance transfer and short 0% purchase deals
Many credit cards now offer longer balance transfer periods at the same time as shorter purchase periods.
For example, Virgin's credit card which - as you remember - comes with a 16 month 0% balance transfer period also offers 0% on purchases for 3 months.
Using both of these offers together would result in additional costs and interest charges on lasting for the entire duration of the "interest-free" balance transfer period. The obvious solution: never use a special offer on purchases shorter than your 0% balance transfer deal.
Although these 0% combination credit cards are still useful when used solely for a balance transfer, then, offering interest-free credit on current credit card debts, failure to be aware of how your payments are allocated to your new credit card balance can spell trouble.
Life of balance transfer credit cards
Life of balance transfer credit cards are probably your best bet if you need to transfer problem balances from elsewhere but think you can't repay the total debt within any 0% offer periods.
Life of balance transfer credit cards carry a low rate of interest but which will continue until the balance is paid off in full.
As with other balance transfer credit cards purchases and other transactions (such as withdrawing cash) on such credit cards should be avoided, as the interest charged will prove very expensive.
It seems they are on a rapid and steady decline and may perhaps not be around much longer. There are just two left here holding the fort, in fact, the RBS Gold credit card and the Natwest Gold credit card.
Summing up
Plastic in the purse is an ever popular way of borrowing and with 0% balance transfer credit card deals now stretching to 16 months, it is not difficult to see why. Remember to compare credit cards for the best deals available.
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