Related FAQ's & Guides
Q. Why do I have to pay a transfer fee? Can I avoid paying it?
A. Transfer fees can be avoided - however you need to weigh up the pros and cons of either avoiding a transfer fee by transferring to a low rate for life, or very short 0% period - or paying a transfer fee but getting a 0% deal lasting for a year or more.
Q. How can a 0% balance transfer credit card save me money?
A. Transferring existing card debts to a 0% balance transfer credit card will offer you a valuable period of time where you will be charged no interest on your credit card debts, giving you the time to pay off your outstanding balance without having to struggle against accumulating interest charges.
Virgin Holds Out for No. 1 Balance Transfer Best Buy
The Virgin credit card topped the balance transfer best buy tables in 2007 and it’s set to do the same in 2008 too.
Which Balance Transfer Credit Card is Right for Me?
The whole point of getting a balance transfer credit card is to save you money, so it stands to reason how worthwhile it is to make sure you're taking out the best balance transfer deal for you and your finances.
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CHOOSING between a no free balance transfer and a 0% interest-free balance transfer is really a question of cost.
While no one really wants to have to pay a fee for the privilege of not being charged an arm and a leg on an outstanding credit card balance, the actual calculated cost compared against the other options can make it seem a lot more appealing.
The cost of the transfer fee
Balance transfer fees are currently now in the range of 2.5% to 3% - especially on the longer length 0% offers. The fee charged is a percentage of the amount you want to move over, so larger balances will carry larger fees.
An example balance of £2,500 would carry a transfer fee of £75 for a quoted 3% fee.
Against standard rate credit card repayment
£75 may sound like a lot, and in fairness it's not exactly pennies. However, compared with the interest charged for repaying £2,500 on a standard rate credit card of 16.9% p.a. over 15 months (£185 per month) that would cost £270 in interest charges.
That's a staggering difference of £195 - that's like getting a free 80Gb iPod, a year's free broadband subscription, or a 5-night city break to Venice (courtesy of lastminute.com!)
Compared to no fee life of balance transfer deal
In comparison to a no fee life of balance transfer credit card deal, if you transferred £2,500 and repaid £185 per month to clear the balance in 15 months you’d pay £94 in interest charges if the offer was a rate of 5.9% p.a.
That's £19 more than repaying on a 0% balance transfer deal with a 3% transfer fee. Which is not a substantial difference, and the added benefit to a life of balance transfer deal is that if you need to reduce your monthly payment you can do so without worrying about your promotional interest rate running out.
Repaying the minimum over a longer period
As most fee-free balance transfer deals are for the 'life of the balance', you may want to just pay back the minimum required each month to cut down on your monthly outgoings.
An example balance of £2,500 repaying £80 per month (as a rounded-up approximate minimum repayment amount) would cost £222 interest over a repayment period of 35 months - based on a 5.9% p.a. fixed offer.
If you did the same on a 15-month 0% balance transfer deal you’d have a remaining balance of £1,300 at the end of the 15-months.
After the initial 15 months at 0% you could then choose to move your balance to another 0% deal – the fee would then be £39, and if you upped the repayment by an extra £10 per month, to a £90 monthly repayment, you’d then clear the balance by the end of the second 15-month 0% deal.
This two-deal 0% could be achieved with the Virgin credit card and then the Barclaycard Platinum credit card, though Barclaycard only offers 0% for 14 months - so you would need to up your repayment a little. However, in 15 months time, judging on the movements of the market since the launch of 0% balance transfers there may well be more credit cards offering 0% for 15 months.
So in comparison, a balance of £2,500 repaying the minimum amount each month (£80) would cost:
- On two 15-month 0% deals - a total cost of £114
- On a fee-free life of balance deal (at 5.9% p.a.) - total cost of £222
Additionally, with the 0% balance transfer credit card option you would repay the balance 1 year quicker.
In Summary
It’s important to weigh up the different costs involved with both types of balance transfer credit card, taking into account the interest rate charged or the transfer fee charged, and also make sure that the card that you opt for suits your repayment habits.
Quick repayment - over the next 15 months
If you intend to pay back your outstanding balance within the 0% period (15 months) then a 0% balance transfer credit card deal will save you around £8 for each £1,000 transferred in comparison to a fee-free deal charging 5.9% per annum.
Opting for either balance transfer deal against sticking with a standard rate credit card would be extremely beneficial - with a potential saving of at least £170 up for grabs.
Minimum repayment cost
If you want to just pay back the minimum amount each month – approximately £30 for each £1,000 owing – then you'll need to decide between the easy option (no fee balance transfer credit card deal) which would save you over £500 by the time you've cleared the balance against a standard (16.9%) credit card, or the ever-so-slightly more complicated option (2 x 0% balance transfer credit cards) which would save you an extra £108 but you would need to switch cards twice.
Again, either option is a saving over not switching cards, which is better is really up to you - easy one switch deal? or an extra hundred pounds in your pocket?
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