Over the last few years we have seen the number of 0% balance transfer credit cards rise, which has caused an increase in competition. However, last year the market leader of Balance Transfers – Virgin Money, reduced its interest free period from 16 months down to 14,marking the start of a BT freeze which continued through most of the year.
However, later in the year things began to improve and by the end of 2010, Barclaycard took control of the situation by stealing the spot light with an 18 month 0% deal.
It wasn’t long before some of the other big credit card providers realised that in order to stay in the game, they too would need to boost their deals.
However, the day that two of the other big credit card provides attempted to follow in the leaders footsteps by also offering 18 months 0% – Virgin Money & MBNA, Barclaycard stole the show again by announcing it had increased its 0% duration to an unheard-of 20 months!
Barclaycard later added to its Platinum range with another 18 months BT card, offering a slightly lower standard purchases rate as well as a reduced transfer fee to its sister 20 month Platinum card.
While Barclaycard continues to lead the BT market, a number of other providers have upped their deals, closely following at 18 months. These include Virgin, Bank of Scotland and MBNA.
This is great news for anyone looking to clear their debts, as it means they can avoid further adding to their debts through high interest charges.
By transferring their debt onto a balance transfer card they can effectively freeze future interest payments for up to 20 months, allowing them to set up a payment plan and be debt free in within this 0% duration.
Anyone wishing to transfer debt on this type of credit card will incur a small transfer fee of around 3%, but this shouldn’t put you off, as this fee significantly lower than the rate at which standard credit cards charge.
For example, lets say you owe £4K on a credit card and wish to clear the balance over a 20 month period. After being accepted for the Barclaycard Platinum, you transfer your debt – to which the 3.2% transfer fee is applied, making your total balance £4,128.
By dividing this amount by the total number of interest free months (in this case 20), you can now set up a direct debit of £206.40 to be paid monthly and be debt free within 20 months.
It is important to remember that you must pay at least the minimum monthly balance. Failure to do so could result in you having to pay charges; invalidate the contract and even lead to you getting a bad credit rating which could affect whether you are accepted for credit in the future.
If you are unable to realistically clear your debt over this period, don’t worry. Simply choose the longest 0% deal around once you are coming to the end of your current deal and switch to the new provider.