If your New Year’s resolution was to beat this sleep-depriving debt once and for all, then don’t put it off any longer – follow our top tips and watch your debts shrink…
Beat the interest and repay the capital
If you feel as though your repayments get swallowed up by the interest you pay then you’re probably right.
With the average credit card rate at 18.17%, that means a £2,000 debt costs £28 a month in interest alone, before you’ve even started to repay the balance.
But, by moving to a credit card that offers new customers a lengthy 0% introductory period on balance transfers, all your repayments can be ploughed into the actual debt.
The market-leading Barclaycard Platinum card offers an impressive 17 months at 0% on balance transfers. This means that you could save £512.80 on a £4,000 credit card debt over 12 months, assuming you paid a 3% balance transfer fee and made the minimum repayments of 2.5%.
Cards you qualify for
If you’ve decided to switch then you’ll want to find the longest 0% deal that you can – but it’s important to be realistic about the kinds of cards you can qualify for.
The very best deals are only available to borrowers with great credit histories, who meet the lenders’ stringent criteria.
Because of that, it makes sense to have a realistic idea of what cards you can qualify for before you apply. After all, make several rejected applications and your credit score will be lowered.
There are two ways to do this. One is to get hold of your credit file and see how you look to lenders. Then you know whether or not you’re in a position to apply for the very best balance transfer cards.
Alternatively, the moneysupermarket.com Smart Search tool runs a soft search on your credit file, which doesn’t harm it. It then shows you the top cards and how likely or not you are to qualify.
Find the best balance transfer credit card
If you’re confident that you can qualify, what are the best balance transfer deals? The aforementioned market-leader is the Barclaycard Platinum, which gives you 17 months at 0% for a 2.9% fee.
If you transfer at least £3,000, you also get a £20 refund on your fee. The representative annual percentage rate (APR) for this card is 16.9%, so you’ll want to aim to clear the balance before the interest-free period ends.
Read our review of this card for a more in-depth analysis.
Then there are a load of cards that offer 16 months at 0%, including the MBNA Balance Transfer Card, with a representative APR of 18.8%, the Virgin Credit card, with a representative APR of 18.9%, and the Platinum Card from both NatWest and Royal Bank of Scotland, which both have a representative APR of 16.95%.
All these cards charge a balance transfer fee of between 2.88% and 2.9%.
Work out a repayment plan
If you transfer a balance to a cheaper deal then you’ll save money, but if you don’t use that as a chance to clear the debt then you’re wasting an opportunity.
Sit down and look at how much you’d need to repay a month in order to clear the balance and try to do this before you start being charged interest.
You should also avoid the temptation to spend on your card. Your priority should be clearing your current debts, and not racking up new ones.
If all else fails, consider a loan
How realistic is it that you can repay the balance in full within the interest-free period?
If you’ve worked out what you can afford to repay and know that you can’t shift the debt in time to avoid a high APR then a loan could be a better option.
It’s also potentially a better choice if you lack the discipline to pay more than your credit card’s minimum payment each month.
The very cheapest loan rates are available on borrowing of more than £7,500. Most people won’t have that kind of credit card debt, so consider whether you have any other debt you could consolidate to get the cheaper rate.
That means that, if you borrowed £7,500 over five years, you’d make a monthly repayment of £148.41 and pay a total charge of £1,405.
If you borrow that amount over just three years, Sainsbury’s will cut the rate to 7.1% - the cheapest representative APR on the market.
But if your credit card debt is lower, you’ll face a higher rate – although still better than most credit cards.
Another alternative is a long-term low rate card, like the Barclaycard Platinum Simplicity. It offers a representative APR of 7.9% (much better than the 16.9% available with the leading balance transfer card) and there’s no balance transfer fee either.
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