Consumers forced to clear debt over a year early due to lenders’ 0% balance transfer squeeze
Dec 27th 2019
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.
Customers seeking the best 0% deal to ring in 2020 should move fast — before lenders cut the honeymoon period even further.
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.
With fewer months at the 0% rate, consumers now have less time to pay off debt without penalty.
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.
For more information, please contact James McCaffrey
- Free credit report providers and credit experts, TotallyMoney, are on a mission to improve the UK’s credit score and help people move on up to a better future.
- TotallyMoney launched its free credit report in late 2017, and today has 3 million customers.
- TotallyMoney is the highest rated free credit report provider on Trustpilot. They are also 2018, 2019 and 2020 winners of Best Free Credit Report Provider at Moneynet’s Personal Finance Awards, showing recognition from both its customers, as well as within the wider industry.
- TotallyMoney is backed by Elliott Advisors (UK) and Scottish Equity Partners (SEP), following a £29 million investment announced in January 2019.
- TotallyMoney is also a Sunday Times Best Company as well as a UK’s Best Workplace 2019.