For more than two years the 0% balance transfer credit cards on offer have been getting slowly less good. And there aren’t so many, so they are also harder to get.
This steady decline has not got a lot worse because of Coronavirus.
You may have been shuffling credit card debt around for years with not much problem, but it is becoming harder.
Banks are offering a lot fewer deals
Two years ago there were 126 balance transfer offers available, according to Moneyfacts.
Since then there has been a steady decline. In 2019 it had fallen to just under a hundred, dropping further to 76 in January 2020.
But after Coronavirus, a lot more deals were pulled. Although they are now slowly coming back, there are still not many good offers. So your chance of getting a deal has dropped as there are fewer deals around.
How good a deal can you get?
The interest-free period was falling:
- in May 2017, you could have got a 43 month deal
- in 2018 there were 37 month deals on offer
- for most of 2019 it was about 29 months
- at the end of May 2020, with banks stopping the best deals because of Coronavirus, the longest deal was just 24 months.
Now in early 2021, the longest periods are 25-28 months, but there are very few of these long deals.
At the same time, the fees you pay for these deals have been edging up. Not by a lot – these are still cheap! – but you are still paying more for a shorter 0% period.
The average size of a balance transfer has been falling too. This isn’t because people have lower balances to shuffle around. It’s much more likely to be because the lenders are setting lower limits on the new offer cards.
These trends may continue
These offers may not be as great as they were, but if you can get one, they can still save you a lot of money. Check Money Saving Expert for news of the best 0% deals at the moment.
Always use a soft checker to see which cards you are likely to be offered. If you just apply and are refused, that application on your credit record will make it a bit harder when you apply to someone else.
If you have money problems you probably won’t get one of them. It’s annoying but if you desperately need to move some credit card balances to 0% you may well not be able to get one.
Beware of these six traps!
1. Don’t ignore the fees
There are some cheap or free deals that are a few months shorter than the longest ones. You will save money if you can choose one of those and still clear the balance during the term.
2. You may get less than the advertised length
This is very common. Many adverts say things like up to 27 months, but you could get offered a much shorter time.
It’s sneaky, but there’s not much you can do about it. If you know your credit score isn’t great or you already have a lot of debt it may be safer to apply for a deal where you will get the maximum term even if it doesn’t look quite as good.
3 You may only be offered a small credit limit
If you are hoping to refinance a large credit card balance you may not be able to.
Switching some of your debt to 0% is better than switching none! But it may still leave you with expensive card repayments, so then you need to look at the best way to clear those.
4. Miss a payment date and lose the whole offer
If you miss a payment or make it late, it’s likely the credit card will end your 0% deal and you are back to high-interest rates. And with a problem now showing on your credit record, you can’t easily get a new deal!
This happens to about a quarter of the people that get these balance transfer deals. The lenders know this – it is one of the ways lenders make a profit from these bargain deals.
5. Only paying the minimum as it’s “free”
0% debt is cheap so it may feel like it doesn’t matter, but if you want to get a mortgage it does. Mortgage lenders don’t like you to have a lot of unsecured debt, even at 0% interest.
So what may seem like a great way now to organise your money now can backfire later. You may find you have clear large amounts of debt in a hurry so you can buy a house or remortgage.
6. You can’t refinance when the deal ends
It’s dangerous to assume that you will be able to refinance again when a new deal ends.
A significant number of people do not get another deal when one 0% period runs out. This may be because their credit rating has got worse or they have more debt. Or the lenders may just have tightened up their offers.
These 0% balance transfers are a great way to clear debt as all your monthly payments are reducing your balance.
But don’t think I don’t need to worry now, it’s free money! but really take advantage of them. Use the offer as an interest-free loan and aim to repay as much as possible by the end of the 0% period.
So make sure you profit from these deals, not the lender!
None of these problems should stop you from taking out a 0% credit card.
You just have to be organised so that you take advantage of the deal and the lender doesn’t take advantage of you.
- Don’t rely on your memory to make those minimum monthly payments. You may think you are not going to forget, but a busy period at work, illness or a family crisis can spoil your good intentions. By missing a payment or making it late, you won’t just lose this 0% offer, you are likely to get a black mark on your credit rating which will make it hard to get another one.
Set up a standing order for the amount you know you can afford to repay every month or set up a direct debit so the m9inimumpayment is taken every month – and pay some more whenever you are able.
- Remember when the 0% period finishes. If you have a diary, make an entry one or two months before the deal ends to remind you to start looking for a new one.
- Don’t be tempted into spending on your balance transfer card – leave it at home or, even better, cut it up!
The aim is to clear your debt – not keep rearranging it
The best use of 0% balance transfer credit cards is to let you pay off the debt in the cheapest way, not keep on shuffling it at the end.
This may not seem important now, with interest rates being low, but this is the only time it is easy for you… in a few years time when rates have gone up, much of your monthly payment will be swallowed up by interest charges.
This is especially important if you may want to get a mortgage or remortgage in the next few years. Even if you think your debt is easily manageable because it’s at 0%, you may fail a mortgage lender’s affordability checks, see Can I get a mortgage with debts?