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.
You may have been shuffling credit card debt around for years with not much problem, but it is becoming harder.
Less deals on offer & the limits are lower
In January 2020 Moneyfacts has counted 76 0% balance transfer offers.
two years ago there were 126. Last year it was just under a hundred. That is a steady decline.
So your chance of getting a deal has dropped as there are fewer deals around.
The average size of a balance transfer has been falling too. This isn’t because people have lower balances to shuffle around – it is much more likely to be because they are being offered a new card with a lower limit than they hoped for.
Now deals are much shorter
Here is how they have been changing:
- in May 2017, you could have got a 43 month deal
- a year later in 2018 there were 37 month deals on offer
- in March 2019 that had dropped to 29 months
- at the start of 2020 29 months is still the longest you can get.
At the same time, the fees you pay for these deals have been edging up. Not by a lot – these are still very cheap deals! – but you are still paying more for a shorter 0% period.
Why are 0% offers getting worse?
1) Interest rates have increased
When the Bank of England’s base rate was ultra-low, it was cheap for a credit card lender to offer these deals. But the two small interest rate in 2017 and 2018 have affected how profitable the 0% offers are for a credit card company.
Banks and credit card companies have responded by offering shorter terms, higher fees and lower credit limits.
2) Bank of England has warned about accounting
Many credit card lenders use the obscure-sounding Effective Interest Rate (EIR) accounting method that allows them to book as “profits” now some of the revenue they hope to get from you after your 0% period finishes.
The Bank of England thinks this may be risky. In a couple of years you may have moved your balance elsewhere, have repaid it or may be in financial trouble to you can’t pay it…
In 2018 it wrote to banks twice about this, suggesting that banks using EIR may want to hold more capital. Banks don’t want to hold more capital – this cuts their profits. If a bank is worried about this, reducing the length and size of its 0% offers will help.
What happens to 0% deals next will depend a lot on what happens to interest rates in 2020.
The Bank of England’s Monetary Policy Committee said:
The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.
So interest rates could go up or down!
If the things go well, there may be a small interest rate rise in the next year – that makes 0% deals more expensive form banks to provide, so the terms may become less good – shorter and with higher fees.
If the economy is struggling, the Bank’s instincts may be to try to prop up the economy with an interest rate cut. But there isn’t much room to cur from the current low rates.
4) And less competition
The good old days with banks competing to be at the top of the table for balance transfers have gone. Say you are a credit card lender that does think these offers are still good business so you want to do lots – to get to the top of the table three years ago you had to have a fabulous offer, not you can get there with a much shorter offer.
So 2020 may be your best chance to refinance credit card debt
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.
The offers featured there are the best “table-topping” deals. With a good credit rating, these offers are a great way to get the ultimate in cheap credit.
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
The average size of a balance transfer in August 2018 was only £2,100.
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.
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 – they expect to make high profits from the people who trip up, so don’t be one of them!
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. What may seem like a great way now to organise your money now can backfire later when you have to 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
Because the deals are getting less good and there are less of them, 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.