If you have a good credit rating, there has never been a better time to refinance expensive credit card debt. The deals available on 0% balance transfer cards keep getting better – longer and cheaper. Now, in April 2017, you can get a 43 month deal if you pay a hefty fee or you can get a 28 month deal with no fee at all!
In contrast, there are now a lot fewer cash back offers than 18 months ago and the amount of cash back paid on the remaining cards is lower.
Lenders compete to offer the best 0% credit card deals
At the moment several lenders including MBNA, Barclaycard and Halifax are fighting to be on top of these tables. Many of the deals are now complicated with “little extras” being thrown in – cash back, Nectar points, M&S vouchers etc.
The following offers were all available in early April 2017, check MoneySavingExpert for the most recent news:
- the longest 0% period: MBNA is offering up to 43 months with a fee of 2.99% (also 43 months on it’s Numba brand, with a higher fee but an Amazon voucher – do the maths to see if you will gain from this!)
- nearly as long but a lower fee: Sainsburys has 42 months (guaranteed) at 0% with a fee of 2.3%;
- best low fee deal: Barclaycard offering up to 37 months at 0%, with a fee of only 1.4% – that is a a big saving over the cards offering 40 months plus!
- top no fee deals: Sainsburys at 28 months (guaranteed).
So what’s the catch?
There are four problems with these great-sounding credit card deals:
- you may not be able to get one The better the offer, the more restricted it is. The card firms make slim profits from these cards so they only offer them to people with great credit records. The golden rule here is use a soft checker to see which cards you are likely to be offered, don’t just apply and risk being refused.
- you may not get offered what the ad said Many banks say things like “up to 40 months”, but you could get offered a lot less. Bizarrely there is no minimum number of people that have to be offered the headline length. Money Saving Expert calls this the Great 0% Ads Scam.
- you may end up paying money About a quarter of the people that get these credit card deals miss or make a late payment, and then the 0% changes back to normal high credit card interest. Read How banks make money from 0% cards and make sure you avoid these pitfalls.
- you end up carrying a too much debt It may feel that 0% debt doesn’t matter, but if you want to get a mortgage or remortgage it does… mortgage lenders don’t like you to have much unsecured debt even if it is cheap. So what may seem like a great way to organise your finances at the moment can backfire if later you are faced with having to clear large amounts of non problem debt so you can buy a house or remortgage.
Treat 0% balance transfer deals like an interest free loan
0% balance transfer deals are a great way to speed up your debt repayment as all your monthly payments are reducing your debt. But to really take advantage of them, don’t think “I don’t need to worry now, it’s free money!” but instead use the offer as an interest-free loan and aim to repay as much as possible by the end of the 0% period.
If you just make the minimum repayments, the debt won’t be anywhere near cleared by the time the deal runs out, as the minimum amount reduces each month. Instead divide the amount by the number of months and set up a standing order to repay that amount each month. Then by the end of the deal, your balance will be zero.
Even better would be to make that standing order a bit more each month. If all goes well, you will be debt free sooner – especially important if you have your eyes on a mortgage! And if you later have any problems, then your debt is going to be lower and more manageable.
Is the end coming for cash back cards?
In 2015, the European Parliament passed a law to reduce the fees card companies charge retailers when a card is used. The fees from retailers used to more than cover the cost of cash back paid to customers, leaving lenders with a profit. With the current 0.3% cap, the card issuers can lose money every time a credit card is used if they pay a lot of cashback!
So cash back credit cards are becoming rarer and the amounts paid less generous. Here are some lenders who have eliminated or cut cashback in the last 2 years:
- Capital One stopped offering new cashback cards and reduced rewards to existing customers in June 2015;
- RBS withdrew the Your Points scheme used by about a million RBS and NatWest customers in July 2015;
- Tesco halved the clubcard points offered by Tesco credit cards on non-Tesco’s shopping in November 2015;
- M&S halved the points on non-M&S shopping in March 2016;
- Amex reduced cashback rates on its main Platinum and Everyday Platinum card and hiked the amount you have to spend to get the cashback in August 2016;
- in October 2016, Santander stopped offering its 123 card (which provided cashback of 1%,2% or 3% depending on type of expense) to new customers;
- in November 2016, Santander announced the total cashback will be capped at £9 a month from February 2017 – and you have to pay a £3 a month fee.
This article is updated regularly – latest update April 2017