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If you’re paying interest on credit card debt, reducing the rate can help you clear it faster.
More of each monthly repayment then goes towards what you owe, giving you a better chance of getting the total balance down.
A zero per cent balance transfer card can do that by moving existing debt to a new card with an interest-free period.
But there may be an upfront fee and choosing the longest deal, while giving you more time to clear the debt, could mean paying for time you don’t need.
Transferring a £3,000 balance could cost you nothing – or more than £100 in fees. The right choice depends on how much you can reliably repay each month, so here’s how to work out what you need.
Start with your monthly budget
Before comparing cards, work out what you can afford after essential bills and other commitments.
At zero per cent interest, £3,000 takes 30 months to repay at £100 a month, 15 months at £200, or 10 months at £300. Any transfer fee added to the balance must also be cleared.
Simon Trevethick, head of media and social change at StepChange Debt Charity, says: “Factor in any transfer fee, check how long the promotional rate lasts, and calculate how much you would need to repay each month to clear the balance before it expires.
“Make sure that amount is realistic alongside your essential living costs and other financial commitments.”
What £100, £200 or £300 repayments looks like
Andrew Hagger, founder of MoneyComms, has compared offers for someone transferring £3,000.
His examples include Virgin Money deals offering up to 35 months interest-free with a 2.45 per cent fee, or 18 months with a 0.95 per cent fee. For someone repaying more quickly, Santander currently offers 12 months with no transfer fee.
The table below shows the fee in the amount you need to repay, so the two fee-paying examples require a small final payment after the £3,000 debt is cleared.
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|
Monthly repayment |
Example interest-free period |
Transfer fee |
Repayments to clear debt and fee |
|---|---|---|---|
|
£100 |
Up to 35 months |
£73.50 |
30x£100, then £73.50 |
|
£200 |
18 months |
£28.50 |
15x£200, then £28.50 |
|
£300 |
12 months |
£0 |
10x£300 |
These examples assume you receive the stated offer, transfer promptly, make every payment on time and add no new spending. Your payment must always cover the lender’s minimum.
When paying a fee saves money
The comparison changes if you choose a shorter fee-free offer but still owe money when interest starts.
Take a 12-month deal as an example. Paying £100 a month would leave £1,800 outstanding on your original £3,000 debt at the end of the interest-free period.
In an illustrative calculation using a subsequent rate of 24.9 per cent APR, continuing at £100 a month would add about £415 in interest before the debt is cleared. In this instance, paying £73.50 for the longer offer would therefore save roughly £342.
At £200 a month, however, the result is much closer. You would have £600 left after 12 payments. Using the same interest assumption, clearing that remainder would cost about £23 in interest.
Paying the £28.50 fee would buy extra breathing space, but the shorter fee-free deal could work out around £5 cheaper overall.
That small saving depends on keeping up your repayments. If an unexpected bill forces you to pay less one month, the longer interest-free period could prove useful.
Don’t pay for more time than you need
Hagger also highlights TSB’s offer of up to 38 months at zero per cent, with a 3.49 per cent fee.
Transferring £3,000 would cost £104.70. That is £31.20 more than the 35-month example, or an unnecessary £104.70 if you can comfortably clear a fee-free deal within its promotional period.
Compare the fee with the interest you would otherwise pay. Allow some room for unexpected expenses when deciding how quickly you can repay.
And always remember that different cards come with different terms, including when interest is calculated and charged – make sure to check before choosing.
Trevethick warns: “Don’t assume you’ll be able to transfer the remaining balance to another 0 per cent deal when the offer ends. If you can’t clear the debt in time, you could end up paying interest on what’s left, as well as having paid a transfer fee, leaving you worse off in the long run.”
Protect the deal you choose
Use an eligibility checker that makes a soft credit search before applying. Check the actual interest-free period offered, the credit limit and the deadline for transferring.
Set up a direct debit and check it covers at least the minimum payment – missing a payment can mean losing the promotional rate. Avoid adding purchases, which may attract interest even while the transferred debt remains interest-free.
If repayments are already becoming difficult, seek help before taking on another card.
Trevethick says: “If you’re struggling to pay more than the minimum on your existing credit card, it’s worth seeking free debt advice before applying for another card.
“Taking on new credit isn’t always the best solution, and a free, impartial debt adviser can help you understand your options and find a way forward that works for your circumstances.”
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