Balance transfers on credit cards continue to gain momentum

It would be natural for most of us to think that the global credit crunch, which has taken its toll in most of the UK’s financial sectors, would have resulted in fewer people trying to get credit due to the tight credit conditions in place.

However, it seems that when it comes to balance transfer credit cards this is not the case. According to recent reports hundreds of thousands of people every month are trying to transfer their balances from high interest credit cards to low rate or interest free balance transfer credit cards.

This could be seen as a positive or negative thing. Some people may transfer their balances, and then end up spending on their old, higher interest card again, which could result in increased debt levels.

However, on the other hand some people may be transferring their balances simply to reduce their outgoings and the amount of interest that they are paying, which is obviously a good thing providing they exercise common sense, do not run up debts on their old cards again, do not use their balance transfer cards to make purchases, and pay off their transferred balance within the interest free period.

With the credit squeeze affecting many people’s household finances, it makes sense to try and cut out unnecessary payments such as high rates of interest on your borrowing, and a balance transfer card could be the solution.

In a recent study it was shown that the average amount per person being transferred was £1555. However, there are some consumers that are transferring in excess of £4000 each.

One industry official recently stated: ‘There is a significant market for cards offering balance transfers as our research indicates that 40% of card holders think it will take longer than one month to clear their current balance.’

The bad news is that the availability of affordable balance transfer credit cards has fallen over recent months as a result of the credit crunch, and this could have a knock on effect on other areas of finance, such as people’s ability to pay their mortgage.

Many will find it hard to find a balance transfer deal to help them to manage their credit card debt more effectively.

One debt charity official recently stated: “We’ve lived in period where we’ve had very cheap, accessible credit; people would just keep doing nought per cent balance transfers. One of the major effects of the credit crunch is that people can’t manage their large amount of debt as cheaply as they could before; this is having a knock-on effect. We’re seeing increases in mortgage arrears. If people can’t afford their non-priority debts anymore sometimes they’ll stop paying their mortgage as well. It’s definitely having a knock-on effect.”

An official from Sainsbury’s Bank also added that it was vital that consumers make the right choice when it comes to selecting a balance transfer card in order to gain the benefits of these cards.

He said: “Although there are a number of credit cards offering introductory 0 per cent on balance transfers, there is a considerable difference in their duration so people need to choose carefully. Also, when choosing a card for a balance transfer, it is also worth considering what else it offers. For example, we offer 0 per cent for a whole year on Sainsbury’s purchases as well as earning Nectar points equivalent to 2 per cent cash-back.”

There are a number of factors that should be considered if you plan to try and reduce interest by transferring balances from high interest credit cards onto a balance transfer card. You should remember:

• Most 0% balance transfer cards charge a transfer fee of 2-3% of the total amount being transferred, so make sure you check and work out how much you will be paying for the privilege of transferring your balance.

• Many 0% balance transfer cards now do not cap this transfer fees, but there are some that still do. Look around and see if you can find a card that offers a capped balance transfer fee if you plan to transfer a lot of money, as this could save you a considerable amount of money in fees.

• The interest free period with balance transfer cards varies from one card to another, so make sure that you compare them in order to find the longest period, which will give you more time to repay your debt without being charged interest.

• If you cannot repay your debt within the specified period consider a low rate life of balance transfer card. These do not usually charge a transfer fee, and charge a very low rate of interest until the transferred balance has been cleared