Research by finance experts, TotallyMoney shows that Brits paying interest on their credit card debt are wasting hundreds of pounds by not switching to a better deal.
- Customers can save a massive £676 in interest by transferring the average credit card balance of £2,177 to a 0% balance transfer card of 21 months
- A huge 54% of active credit card accounts have interest accruing balances outstanding at the end of the calendar month
- January marks balance transfer season, the busiest month for balance transfers which sees an average of 687,000 transactions worth an average of £1.55bn each year
- There were just 60 balance transfer cards available in the market in December compared to 75 the year before, while the average number of interest-free days is at its lowest level since May 2015
54% of credit card balances incur interest – but these interest charges are avoidable for borrowers eligible for a balance transfer card.
Balance transfer cards charge 0% interest for a set period of time, meaning 100% of credit card repayments go towards reducing the debt, not paying interest.
TotallyMoney found that by transferring the average credit card balance of £2,177 to the average balance transfer duration of 21 months, customers could save a huge £676.
Customers seeking the best 0% deal to ring in 2021 should move fast — before lenders cut the honeymoon period even further. Recent figures show that as of December 1st 2020 offer durations were at the lowest level since May 2015.
Not only are the offer durations shortening but the number of products available to customers has also fallen from 75 in December 2019 to 60 in December 2020.
An interest freeze still comes with fees
Most balance transfer cards charge a balance transfer fee. This is quoted as a percentage of the debt transferred, with a minimum cash amount. For example, ‘3% with a minimum of £5’. This means if you transferred £1,000 of debt, you’d pay £30.
The golden rule with 0% balance transfer credit cards is to repay your entire debt in the interest-free period. For example, if you had £2,000 of debt and could afford to repay £100 a month, you’d need a card that’s 0% on balance transfers for at least 20 months.
Alastair Douglas, CEO of finance experts TotallyMoney, comments:
“As many look to get their finances in shape for the new year, one way that customers can save money is to stop paying interest on their debt when there’s no need to. Transferring existing debts over to a balance transfer card lets you pay off your debt while avoiding the spiralling interest charges.
“Unfortunately, balance transfer deals aren’t as generous as they used to be with both the introductory durations on offer and the number of cards available in decline.
“When applying for a credit card make sure you check your eligibility. This will help you avoid rejection and damage your credit score.
“You should also use these cards carefully. Resist the temptation to use a balance transfer card to make purchases as most will charge a high rate of interest on any new borrowing.
“At TotallyMoney, we’re on a mission to improve the UK’s credit score and help people move on up to a better financial future. Switching your credit card will mean clearing debts quicker, which will reduce your credit utilisation. Cutting your credit usage will normally have a positive effect on your credit score.”