We all know we should pay off our credit card balance every month if we want to avoid interest and penalties. But occasionally that's just not possible, particularly during a recession. So if you've racked up more debt than you would like and are now trying to get things back under control, I have some good news for you.
The Clydesdale and Yorkshire Bank have launched a new credit card that lets you transfer your debt and pay no interest on it for 16 months. This is an exciting development for two main reasons.
First, it gives you 16 months to pay your debt off, without the worry of high interest charges in the meantime. This is a long period, making it easier to set yourself an achievable repayment schedule. All you have to do is make sure you stick to it; so that by the time the 0 per cent period comes to the end you will have cleared your debt completely.
Second, its launch could well spark off fresh competition in what has been a very sluggish credit card market. It is the best balance transfer deal currently available. It's not the only one - it is closely followed by credit cards from Santander (15 months) and Virgin (14 months) - but I hope to see even more choice in the months ahead.
Whichever card you choose, here are the things you need to bear in mind:
Most balance transfer cards will charge a transfer fee of between 2 per cent and 3 per cent, so make sure you take this into account when working out which card is best for you. This fee can normally be added to your credit card debt and while it sounds like a lot, it tends to be worth paying when you calculate how much interest you would be paying otherwise. Be aware that once the initial special interest periods are over, the interest charged on these cards is generally less competitive than other credit cards on the market and in some cases can be very high. This isn't really a problem, of course, if you pay your balance off. Make sure you set a budget to pay off your debt and stick to it. That probably means tightening your belt, changing your spending habits and keeping closer tabs than ever before on all of your accounts. Avoid penalties by paying at least the minimum each month. Don't forget that you can still be charged interest on any new spending over and above the balance transfer. This said, there are some cards out there that offer deals on both balance transfers and purchases made during initial periods, so look out for them too.
If you don't have a good credit score you're unlikely to qualify for a balance transfer credit card. So if you've been declined credit recently or are worried about your credit rating, check it out first. Lenders use a lot of different agencies and their own criteria, to come up with your credit score, which makes it tricky. But it's worth checking what information the two key players, Experian and Equifax, hold on you. You may have to pay for the privilege, although Experian often offers free trials. You can also find out more about credit ratings and alternative options at Moneysavingexpert.com and moneysupermarket.com. If you've been rejected once, stop applying until you understand why and have tried to put things right.