As January rolls in, it brings with it the inevitable financial strain from new bills. Some individuals may contemplate acquiring a new credit card to distribute expenses and reduce borrowing costs.
Utilising no or low-interest promotions can be an economical method of debt management if you find yourself needing to borrow. However, caution is advised when transferring balances to a new card to avoid unforeseen charges.
Katie Brain, a banking specialist at Defaqto, which manages a database of financial products, warns: “Many balance transfer cards will charge a fee to move your debt over to them. This fee is a percentage of the amount you will put on the card.”
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Defaqto’s research indicates that as of early January 2025, the average fee for transferring a balance to a card offering a 0% interest rate was 2.79%. Brain points out that there is a variety of balance transfer cards available that provide a 0% interest phase, allowing you to incur no interest on your debt for a set duration.
When comparing different cards, Brain advises that extended 0% interest periods might come with higher balance transfer fees – hence, it’s crucial to assess how long you need the zero-interest term to last and to be realistic about your ability to clear the balance promptly, reports Devon Live. Additionally, Brain cautions that missing a repayment on a balance transfer card could result in the forfeiture of the interest-free deal – “so don’t overstretch yourself”.
Another crucial point to remember is that borrowers may only have a limited period to transfer the balance in order to secure the promotional 0% deal. Brain also emphasises the importance of setting a reminder on your phone calendar, alerting you a month before the 0% interest offer concludes.
This allows you to evaluate your financial situation and plan accordingly before the interest begins to accrue. Furthermore, it’s important to note that not everyone will qualify for the advertised 0% offer.
Brain explains: “Many balance transfer cards will advertise specific offers, but these will depend on your credit file. So check which cards you would be eligible for first.”
She recommends online resources such as MoneySavingExpert Credit Club, ClearScore and Credit Karma. These online tools can provide an initial indication of whether you might qualify for a particular card – prior to submitting a full application.
These “soft” credit searches do not leave a mark on your credit records, unlike “hard” credit searches, which occur when a full application is submitted. Lastly, if you’re considering making new purchases, Brain advises always checking the interest rate – as you may not want to spend on a balance transfer card.
If you wish to make new purchases on credit, you could consider a card which offers both a balance transfer and purchase offer, she adds.