Consumers forced to clear debt over a year early due to lenders’ 0% balance transfer squeeze

Research by credit experts TotallyMoney and MoneyComms warns that lenders are putting the squeeze on introductory 0% interest cards for balance transfers. Consumers looking to take charge of their debt in the new year may struggle to find a deal that lasts long enough to clear their debt interest-free.


  • The maximum term for interest-free transfers has been slashed 32.6% in just two years, from 43 months (Jan 2017) to just 29 months (Nov 2019).
  • An average drop from 25 months of 0% interest (Jan 2017) to just 17.9 months (Nov 2019) – down 28.4%.
  • January is the busiest month for balance transfers. Last January, consumers made 701,000 transfers, worth £1.541 bn.
  • 0% balance transfers continue to outweigh the transfer fee, with the average consumer transferring £2,200.* They would ‘earn back’ a one-off fee of 3% (£66) in just seven weeks of zero interest rather than paying 19.9% APR.

  • The research shows lenders are shrinking the balance transfer honeymoon period, after which the enticing 0% interest rate disappears and a much higher rate kicks in.

    It suggests lenders are eager to recoup their money in less time, but that leaves consumers at risk. If they don’t pay off their debt by the deadline, they could incur punishing interest rates that trap them in a cycle of debt.


    Resolution solution

    Customers seeking the best 0% deal to ring in 2020 should move fast — before lenders cut the honeymoon period even further.

    Every January, consumers resolve to take control of their finances. In January of the last three years, consumers made over 700,000 balance transfer deals, adding up to over £1.5bn.

    Whether they’re tightening their belts after Christmas spending or simply trying to regain control of their finances, 0% offers can help, if used sensibly.


    Time is money

    Despite one-off fees and fewer months at the 0% rate, balance transfers are still worth considering. The average consumer would save the cost of their transfer fee in just over seven weeks of not paying 19.9% APR — and still enjoy months of additional savings from zero interest charges.

    However, despite today’s average term of 17.9 months with zero interest being tempting, it is significantly lower than before.

    Just two years ago, credit card companies granted up to 43 interest-free months, but today’s maximum is just 29 months. That could mean 15 extra months of paying interest, a cost of £621.87.


    Pressure cooker

    With fewer months at the 0% rate, consumers now have less time to pay off debt without penalty.

    The stress of rising debt is only part of the problem. Many people rely on 0% borrowing just to stay afloat. The reduction in 0% deal terms could be a ticking time bomb for some consumers.

    Even though the 0% market is less attractive as interest-free periods shrink, there is no let-up in demand, with over half a million transactions each month, valued around £1.2 billion.*

    Alastair Douglas, CEO of credit experts TotallyMoney, comments: “Many consumers act decisively to take control of their finances as the new year begins. Transferring their balance to a 0% card can help them ‘catch up’, giving them time to pay off their balance without spiralling interest charges.

    “This year, with lenders squeezing the number of months they offer a 0% introductory rate, customers will be under pressure to pay off their debt more quickly. They need to be even more savvy about finding the right deal, to get the maximum breathing space, free from interest charges.

    “Those looking to get a balance transfer card should start by checking their eligibility. They will learn how likely they are to be accepted, and prevent damage to their credit rating as a result of being rejected.

    “At TotallyMoney, we're on a mission to improve the UK's credit score. Checking your free credit report is the first step towards making sure your score is as good as it can be. With this, you’re much more likely to get better balance transfer offers, helping you get on top of your debt and move on up to a better financial future.”


    5 balance transfer tips to save you money

    1. Check your eligibility

    Get a free credit report and discover your Borrowing Power. You’ll see how likely you are to be accepted for balance transfer cards, saving time and avoiding a knock to your credit score from being turned down.


    2. Never miss a payment

    Set up a direct debit to avoid negative consequences such as penalty fees or credit score damage. Missed payments could even make your 0% interest rate disappear. You’d have to start paying interest immediately on the remaining balance, probably at an uncompetitive rate.


    3. Don’t spend or make cash withdrawals

    Don’t be tempted to use this card to buy anything. The 0% deal is only valid on the balance moved. All new purchases will be charged interest — and the rates tend to be quite high.


    4. Never outstay your welcome

    Clear your debt before the 0% interest deal ends, or move it to new balance transfer card. Otherwise, your remaining balance will start to incur interest charges, often at a high rate.


    5. Check transfer limits

    You can usually move debts from multiple cards onto a single balance transfer card. The amount you transfer must be within the credit limit on your new card, minus the fee. Typically, you can transfer up to 95% of your credit limit. Weigh up how much debt you need to pay versus the credit limit you are likely to be offered.


    *Source: UKFinance

    Calculations by Moneycomms.co.uk

    Research undertaken on 15.11.2019


    For more information, please contact James McCaffrey

    About TotallyMoney

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