Saving money with a credit card switch

1st March 2012  

According to Sainsbury’s Finance, around three million people in the UK are set to switch credit cards over the next 12 months as the interest-free promotional period runs out on their old cards. Card hopping, or rate tarting as it’s become known, has become very popular with almost two million adults saying they intend to apply for new credit card as the interest-free period on their current 0% balance transfer deal comes to an end.

Just under a million consumers are also planning to do the same as their 0% on purchases deal starts to accumulate interest charges. The savvy card-using public has woken up to the benefits of card switching at a time when the difference between headline interest rates and credit card borrowing rates is at an all time high.

In an attempt to lure the most credit worthy customers onto their books, lenders such as Virgin Money, Barclaycard, Royal Bank of Scotland and Halifax are all offering greatly extended interest-free periods of up to 22 months. (Read more about the balance transfer price war on our Balance Transfer Cards page).

So if you play it smart, you could have almost two years worth of interest-free payments making it much easier to clear outstanding balances.

But is it all good news?

Although this might seem like a real lifeline for debt-ridden consumers, there are a couple of warnings.

Card hopping might seem like a smart financial move, but remember that interest payments are how the lenders make their money. Nobody likes a smart-Alec, and lenders are no different.

Card hop too regularly and it could affect your credit rating, even if you’ve never missed a payment. While we’re not advocating paying any more interest than you absolutely have to, too many balance transfers in quick succession could raise eyebrows amongst the lenders.

The other problem is rejection. While 22 months of interest-free payments might seem like a fantastic offer (which it is), credit card issuers only have to offer their headline deals to up to 51% of new applicants under the 2011 Consumer Credit Directive.

Application criteria for these best 0% cards are tougher than the SAS selection course, so if you’ve got any bad news in your credit history, you may get accepted but not get offered the top advertised rate or promotional offer. Take a look at our Top tips for improving your credit rating before applying to stand the best chance of getting accepted.

Play your credit cards right!

But play your cards right and you could end up with a cracking deal. The typical balance transfer APR on interest-free cards goes up to 18.2% once the good times stop, so be prepared to look around and compare credit cards a few months before your interest-free period is up. Lining up another 0% card to hop over to could save you a considerable amount in interest payments, even over a short-term period. (Interest on a typical £2000 outstanding balance with an 18.2% interest rate will cost you nearly £40 a month).

Due to the time it takes to apply and get accepted for new credit cards (and for balance transfers to be processed) you should apply a minimum of 6 weeks before your old deal runs out if you want to avoid paying interest charges.

Spreading the cost of credit card bills by taking advantage of 0% balance transfer offers is the sensible thing to do. If you’ve got the credit rating to make it happen, it’s really a no-brainer – why pay more than you have to?

Lenders are still anxious to attract new customers, so taking advantage of the deals on offer really could be the best way to manage your credit card debts over a longer period. Just remember not to add to the debt by putting new purchases onto a balance transfer card, and you’ll avoid making that debt any bigger than it needs to be.

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