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By Reno Charlton
News Editor
Over recent years many people have benefited from using 0% balance transfer credit card deals as a way to cut borrowing costs and more effectively repay outstanding card debts.
Balance transfer handling fees were introduced when credit card companies started making too much of a loss from 0% balance transfer deals – as they found cardholders were not continuing to use their accounts past the end of the 0% period.
Initially these handling fees were capped with maximum charges of around £50. This capped limit meant that a fee only had to paid on amounts up to £2,500 (based on a 2% fee), which was a clear benefit for anyone dealing with large debts.
However, along with an increase in the fee percentage charged – moving slowly from an average 2% to a now more typical 3%, capped fees have also been on the decrease with many lenders opting to remove any ‘maximum fee’ limit.
While people with a more modest balance won’t be affected by the shortage of capped fees, anyone with a balance considerably more than £2,500 will, and of course it’s these people with larger balances who are most likely going to be switching again.
A recent industry report found that around twelve months ago there was eighteen different credit cards that offered capped transfer fees. However, this has now fallen to just seven cards, which are offered by five different providers. The choice available has therefore been dramatically cut.
Anyone with a large credit card balance outstanding should start weighing more heavily on the length of the 0% period offered; the longer you can keep the balance on one card at 0% reduces the amount of 0% deals you will need to switch between before the balance is repaid in full.
Of course, the more you can repay each month will also clear your balance quicker, and with some of the best buy cards now offering 0% for up to 15 months it may now be possible to clear larger balances with just one 0% credit card.
Lyndsey Burton, Director of Credit Card Comparison Online said: “Balance transfer handling fees are no ones cup of tea and can be an annoying added expense at best, but it’s worth keeping a perspective of these charges in mind.”
“A balance of £5,000 on a standard interest rate of 15.9% per annum would attract interest charges of around approximately £65 per month. Compare £65 a month to paying a transfer fee of £150 (based on a 3% fee) for 0% interest for up to 15 months – and it’s plain to see where the money saving really lies.”
With fewer and fewer cards offering capped fees on balance transfers it has become increasingly important for people to hunt around for cards that offer the longest 0% balance transfer deals and the lowest transfer charges in order to save the most money and repay their balances the quickest.
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