Traditionally, many cardholders have transferred their Christmas balance to a new 0 per cent balance transfer card. However in the current market, many people are finding it increasingly difficult to access the best deals, with only four out of ten applications being accepted. Anyone looking to switch cards should consider the following:
- Check your credit rating - make sure you have a good credit rating before applying for a credit card as many providers have tightened up their lending policies. Be warned though, even a good credit rating may not guarantee card acceptance.
- Realistically plan your budget for repaying your debts - If you are looking to switch a debt to a zero per cent deal, then aim to pay off this debt before the balance transfer period ends. Make sure you can afford the monthly repayments to clear the debt. Moving £3,000 to the market leading Virgin Money credit card would save £550 in interest** by repaying £193 per month over the 16 months interest free period.
- Switch to a low rate card - If you cannot afford to repay a debt on a zero per cent card, consider switching to a low rate credit card. By switching £3,000 to the market leading low rate credit card from MBNA at 6.7 per cent available through moneysupermarket.com and repaying £150 per month it would take 22 months to clear the balance and save £366 in interest**
- At a time when we have seen consolidation of providers in the credit card market anyone looking to switch a credit card debt should check whether they are permitted to transfer their balance to a new provider. Many providers prohibit the transfer of existing debt to other cards within the group. For example cardholders cannot transfer a balance from a Sainsbury's credit card to a another HBOS issued card, or Virgin credit card balances to another card issued by MBNA.
- Even if you are accepted for a new deal, the credit limit you receive may not cover the entire balance you want to switch. If this is the case, then transfer as much as you can to it and focus on paying off the remaining balance on your old card as quickly as possible.
- If you are unable to find a new card deal, consider a personal loan. A loan will allow you to make fixed repayments over a set period of time so is ideal for anyone looking to budget. Many new loans are only available to existing current account customers but still shop around to make sure you are getting a good deal.
- If you are unable to move your Christmas debt, then aim to pay off the balance as quickly as possible. Paying off £150 a month on a £3,000 balance on a card with an average rate of 18.31 per cent would take two years.
Peter Harrison, credit cards expert at moneysupermarket.com, said; "It is extremely difficult to switch cards at the moment so you need to be savvy about tackling your existing debts. The best approach largely depends on your credit rating and how much you are able to repay every month.
"Whilst the credit card market has seen better days, there are still some great deals out there, all be it hard ones to obtain. People need to be aware that even if they are accepted for a good product now, there is no guarantee this will be the case in a year's time, as such careful planning is required to ensure credit card debts are cleared in the most efficient way possible."
- Ends -
Notes to editors:
* Opinium Research carried out an online poll of 2008 British adults from 29th September and 2nd
October 2009. Results have been weighted to nationally representative criteria. Based on UK adult population of 50,647,005: http://www.statistics.gov.uk/populationestimates/flash_pyramid/downloads/Population_Pyramid_datasets
** Compared to making a £150 monthly repayment on a credit card with a balance of £3,000 with an industry average APR of 18.31per cent
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