Are you one of the millions of people who find themselves constantly skipping from provider to provider to secure 0% interest balance transfers? Rate tarts, as they are often called, know that if you have a hefty credit card balance that you can’t clear in one go, it’s difficult to make any dent in your debt, when all of your well-meant repayments get gobbled up in interest charges.
Playing the balance-transfer game gives you a good few months to bring down your balance with the aim of clearing it. Unfortunately, 0% balance transfers are only available for a set amount of time (the current market leader, Barclays, offers 22 months) and if you can’t clear your debt in that time you have to move it to another 0% card. Not only are you faced with another balance transfer fee but there’s a chance you could forget to transfer the balance in time. Worse still, you may get refused by the new provider. But there is another option.
What are rate-for-life cards?
Rate-for-life cards offer low interest rates on balance transfers, so while you still have to pay interest on your balance it’s a lot lower than you would be paying with a standard card, giving you a better chance of paying off the balance.
What cards are available right now?
MBNA is big on rate-for-life cards. It’s rate-for-life Visa offers 5.9% on balance transfers for the life of your card, with a transfer fee of 1.5%. Sainsbury’s Low-Rate credit card offers a rate of 6.9% for balance transfers, with no transfer fee. The Barclaycard Platinum Simplicity meanwhile has a 7.9% rate with no handling fees. Interest rates on standard credit cards tend to be around the 18% mark.
What should you consider when choosing one of these cards?
Some rate-for-life cards will charge a fee for transferring your balance while others won’t. However it’s important to work out the overall costs involved before making a decision on which card to choose. For example, saving 1.5% of a £10,000 balance by choosing a Sainsbury’s card over a MBNA rate-for-life card may seem like common sense but since you’ll be paying an extra 1% interest on your balance until you clear it you may be better off taking the hit at the outset.
It’s also worth bearing in mind that some cards have restrictions on where your balance can be transferred from. The MBNA card for example will not accept transfers from other MBNA cards.
Why are lenders increasing the market space for the rate-for-life cards?
More and more people are finding themselves with unsecured debts they can’t clear. A study earlier this year estimated the average family has £8,000 in credit card debt. Low-rate cards are intended to provide a sensible way of helping these people to manage their debts.
How do they compare?
As you might expect a 0% credit card is a better option. If you have £10,000 balance and you’re going to take ten years to clear it, you’re probably going to have to transfer your balance to a 0% card around five times. Given that the standard transfer rate is in the region of 3% you’ll still pay out less than you will on interest charges with a rate-for-life card. However, if you are unable to get another 0% card or you don’t want the hassle of having to transfer your balance repeatedly, a rate-for-life card offers a much more economical option than a standard credit card.