Owe money on your credit card? Or are you going to use a credit card for your Christmas spending? Then you'll be only too aware of the chunky interest payments that can make your monthly statement such a painful read.
But if you transfer your existing credit card debt to a new balance transfer card, you can avoid paying interest on it for up to 41 months. That's just shy of three-and-a-half years.
And that means you could pay off your balance without interest being levied on top until 2020.
Virgin's 41-month deal
Balance transfer cards work like this.
You move debt on one card to another with a better deal. With a 0% balance transfer card you don't pay any interest on the debt you transfer for the stated duration of the deal.
However, you usually have to pay a fee which is calculated as a percentage of the balance you're transferring.
There is a clutch of cards at the 40-month mark, including deals from Halifax*, Tesco**, MBNA***, Bank of Scotland**** and Lloyds*****, but Virgin****** currently has its nose in front – in terms of the duration of the interest-free period – with its 41-month offer.
But Virgin's transfer fee is relatively steep at 4% - the other banks generally charge less than 3%. You should consider shorter interest-free periods with lower fees if you think you can clear your debt in that amount of time.
How to transfer your debt
With any credit card, your credit rating is vitally important – if it's less than top rank there's a chance your application will be turned down.
To help you get an idea of how you stand in terms of credit score and likelihood of getting a card, you can use the MoneySuperMarket's SmartSearch facility.
This lets you check all the cards on the market to find those most likely to accept you. And unlike making an actual application for a card, using SmartSearch won't leave any trace of a search being made on your credit file.
This is important because, if you make a high number of searches in a short period of time, it can have a negative impact on your score.
If you're accepted for a card, you'll have a certain amount of time – usually 60 days – in which to transfer your debt. You then stop paying interest on it for the period indicated by the card issuer.
So, using this tactic, you could put your Christmas shopping on your current card and then transfer the debt and avoid paying interest until the start of the next decade.
Is there a catch?
As we've noted already, balance transfer cards usually come with a fee, calculated as a percentage of the amount being transferred.
So if your chosen card has a fee of, say, 3% of the balance you are transferring, you'd pay £15 to transfer a £500 of debt.
With a bigger balance of, say, £2,000, the 3% fee would amount to £60. Sounds like quite a lot, but you could think of it as £1.50 a month over the course of a 40-month interest-free deal – lots less than the amount you would have paid on an interest-charging card on a £2000 balance.
Cards usually come with a minimum transfer fee of, say, £3. So even if you're moving over less than £100, you'd still pay that amount.
Another factor to bear in mind is the rate of interest you'll pay on any balance outstanding at the end of the interest-free period. This will probably be in the region of 19%, making it important to clear your balance, if at all possible, within the interest-free period.
Also, as with all credit cards, if you miss a monthly payment or pay late, you're likely to see the interest-free period end instantly.
What are the alternatives?
To get an idea of what balance transfer cards are available, use MoneySuperMarket's Balance Transfer Calculator – all you do is put in the balance you want to transfer and the monthly repayment you can afford. It will then show you the cheapest option from the leading cards in the market.
*Representative Example: If you spend £1,200 at a purchase interest rate of 18.95% p.a (variable) your representative rate will be 18.9% APR (variable)
**Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% p.a (variable) your representative rate will be 18.9% APR (variable)
***Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% p.a (variable) your representative rate will be 18.9% APR (variable)
****Representative Example: If you spend £1,200 at a purchase interest rate of 18.95% p.a (variable) your representative rate will be 18.9% APR (variable)