The great credit card conundrum

  • Do you pay off your credit card balance in full every month?

Thought not! Don’t despair – you’re not alone. Around one in three credit card holders don’t pay off their balances in full each month, meaning vast swathes of us are either paying interest on debts or are taking advantage of an interest free deal to manage their debt for a little longer.

And why not? 0% balance transfer deals are very tempting, even with the fees. In fact, millions of us have quite rightly taken advantage of them – you may have switched cards once or twice, or you might even be a ‘rate tart’, switching deals four or five times already.

But switching can become hard work if you have to keep shifting your debt year after year. That’s why so-called Life of Balance cards have arrived and are thriving – you get a low rate of interest until you pay off all your balance, which means no more transferring debt. MoneyExpert takes a look at the options…

Decisions, decisions

What’s the best option for you? Well, it really boils down to three things.

  • Firstly, do you find yourself continually transferring balances from one card to another, instead of actually paying off the debt?
  • Secondly, do you find you end up paying the standard interest rate on your credit card because you don’t switch the moment your balance transfer deal expires?
  • And finally, do you find yourself wondering when this is all going to end?

If you answered ‘yes’ to any of these questions, then a Life of Balance card could well be for you. They remove the hassle of transferring debt from one card to another, you’ll avoid punitive standard variable rates once your current introductory deal expires, and what’s more you might actually start repaying your debt in the process.

The average APR on a life of balance card is around 5.7%, which means on a £1,500 balance the most you’ll incur in interest in a year is £85, or £7 a month. Compare that with a typical standard variable rate of around 20%, which could mean annual interest repayments of as much as £300, and you will soon see the attraction.

Money for nothing?

Ok, so £85 a year is still £85 a year. And then there’s always the balance transfer fees. So Life of Balance cards aren’t charge-free even though getting one will encourage you to repay the debt in a structured way.

The cheapest option if you need to manage your debts is the 0% balance transfer card. There are plenty of deals on offer allowing you to take advantage of free credit for up to a year or longer.

The only downsides are the nasty standard variable rates you’ll encounter at the end of the deal, and the balance transfer fees.

BT fees are increasingly common as providers look to earn extra income to offset those long interest free periods. The charge is usually 2% of the amount transferred – on that £1,500 balance that’s a fee of £30.

But don’t let a balance transfer fee deter you completely – Life of Balance cards come with them too, so they’re difficult to avoid. Weigh up the pros and cons and you could find that the cost of switching is well worth it if you can sit back and relax, safe in the knowledge that one day soon you’ll be debt-free once more.

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