The majority of us have a credit card. Some of us use them sparingly just to make ends meet or for the odd emergency, while others use them more frequently for every day costs such as groceries and fuel. Whatever you use yours for, if you're forever carrying a balance over from one month to the next you could be attracting a huge amount of interest. By looking into credit card balance transfers, you could save yourself a substantial amount of money.
What are credit card balance transfers?
A credit card balance transfer is where you transfer the balance on your existing credit card over to a new card, which attracts a lower rate of interest, or even better, a 0% interest rate.
If you can't afford to clear the balance of your credit card at the end of the month then you will pay interest on it and in some cases this can be a considerable amount. If you have accrued a large debt on the card then you might benefit from looking into credit card balance transfers with a 0% deal attached to them or at least an overall lower rate of interest.
However, to make this work you would have to be disciplined enough and financially able to clear the debt owed on the card within the timeframe of the 0% interest or lower rate deal. It could be a good idea to destroy the original credit card too, so that there is less temptation to run up a debt on it again.
Considerations
Of course, as with all things financial, there are a number of aspects you do need to consider.
Firstly, if you're looking to swap credit cards, do check that the new card comes with no annual fee attached to it. Although annual fees are not as frequent today as they once were, it still pays to check this before rushing into taking a card, as the idea is save money, not spend it!
Another consideration is that when transferring your balance across, you will probably be charged an administration fee. This will usually be a percentage of the amount that you are transferring over. So, make sure that you're comfortable with paying that fee.
One of the most important factors when considering credit card balance transfers and swapping your card is your credit history. Your credit history will note every time you have borrowed or applied for a loan or other borrowing and will take into account any outstanding loans, credit card balances etc and whether you have repaid them on time.
When deciding whether to give you a loan or other credit, lenders will refer to your credit history and then give you a credit score based on your past and current credit history.
If your credit score is particularly bad (say, you have a lot of debt or late / missed payments) then it's unlikely that you'll be offered a credit card with a low rate of interest. It could be almost impossible to get a credit card offering a 0% deal. Therefore, before applying for a 0% or lower interest rate credit card check your credit file to ensure it's all correct, up to date and there is nothing there that could be off putting to a potential new lender.
Once you have transferred your balance to a new card, remember to close your old account. This reduces the risk of running up debt again and also reduces the risk of credit card fraud - which can occur in dormant accounts.
Risks of constantly transferring balance
Continually switching from 0% deal to 0% deal can work out in your favour if you know what you're doing. However, in the future it could also go against you if a lender realises that you are forever borrowing money and never paying any interest on it. Also, lots of credit card applications over a shortish period of time (your credit file has the last six years' of financial data about you), could send out the wrong message. So, to avoid being compromised on getting credit, choose a 0% interest or low rate interest card that is fixed for a long period of time, so you don't have to keep shopping around for credit card balance transfers.
Liz Willder is from Tescocompare.com, the insurance comparison site where you can compare mortgages, features and prices.
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