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Credit Card Balance transfer deals. I am truly baffled- can anyone explain in 'laymans' terms?

(10 Posts)
tiredOFTHEDMemma Tue 18-Aug-09 20:58:36

Both DP and I have fairly substantial debts on credit cards (me 4.7k - Dp 5.7k)
I always try to pay approx £40-£50 over the minimum balance every month but the interest rate is so high that the balance seems to be dropping very s l o w l y.

Im really baffled by balance transfer deals, can anyone educate me - or suggest any good deals?

playftseforme Tue 18-Aug-09 21:07:27

Martin Lewis' website - Money Saving Expert - is very good www.moneysavingexpert.com/cards/balance-transfer-credit-cards. It's not sponsored so all the advice is impartial.

tiredOFTHEDMemma Tue 18-Aug-09 21:14:11

blush

I have been on there and Im still baffled

HaggisNeepsnTatties Tue 18-Aug-09 21:17:56

you will be paying interest at the moment - some cards will offer 0% transfer which means that you will be paying the balance and not the interest.

Penthesileia Tue 18-Aug-09 21:20:03

You should transfer to a 0% interest for X-months credit card.

You will be charged a 2-3% fee, but this is likely to be less than the interest you are currently paying on your current credit cards.

E.g. say you are paying 18% (pretty standard interest rate) on your £10,500:

You pay off the minimum, say 5%? = £525, plus the extra £100 you pay, = £625

That leaves you with a balance of £9,875.

The interest you pay on that (at 18% p/a divided by 12 to get monthly interest rate of 1.5%) = £148.

Your balance is now £10,023.

Next month, you pay off the minimum again: = £500 + £100 = £600

Balance = £9,423.

Interest on that: £141

Balance now: £9,564.

That's 2 months.

If you tranfer to 0% for, say, 9 months at 3% tranfer fee on your £10,500, you'd pay £315 once. Total £10,815. But then you'd only have to pay that, and wouldn't be accrueing interest for 9 months. It would cost you about £300 in interest in just 2 months, so over the course of 9 months, you would "save" (or rather stop racking up interest) about £1000 (I think).

Then, at the end of that card, transfer again. Again, you'll pay the fee, but it is likely to be less than the interest you'd pay on your debt on a normal CC interest rate.

Penthesileia Tue 18-Aug-09 21:24:26

Virgin Money have a 16 month interest free offer on apparently.

It would cost you £315 or so to transfer both your debts, and if you paid off £600 a month for 16 months, you'd only have £900 of debt at the end, and would've saved yourself £1000s in interest payments.

cakeforbrains Tue 18-Aug-09 21:26:20

Ok, basically you need to select a credit card offering a 0% deal. Look for a card that gives you at least a year at 0%.

When you apply for the card there will be a question on the online application form asking if you want to transfer a balance. Answer yes and then enter the details of your existing card.

When/if you are accepted for the new card, the balance transfer will be made automatically. If the new card has a smaller credit limit than your existing card, they will transfer your balance up to 90% of the card limit. You can then apply for another card to cover the rest of the balance. Most cards will charge a fee of 2.5 - 3% for the transfer, but do not worry, you will save this over the year.

It is really really important that you do not do any new spending on the balance transfer card as you will then be charged interest on this (most cards will use your repayments on the balance transfer first, so any new spending will just attract loads of interest).

Look here and scroll down to 'Best buys: top 0% credit card balance transfers' for a list of 0% cards available at the moment.

You need to choose a card from a different banking group to the cards you currently have, e.g. if you already have an abbey card you can not transfer to another member of the Santander group.

Once you have transfered, you need to set a reminder to move the debt again approx 1 month before the end of the 0% period. Keep repeating until you have paid off the debt.

Good luck!

Penthesileia Tue 18-Aug-09 21:28:43

YY! It goes without saying that once you have transferred your debt, YOU MUST NOT USE THE CARD AGAIN! grin Cut it up, and pay online.

Penthesileia Tue 18-Aug-09 21:29:29

I mean "pay off the debt and manage your account online"...

tiredOFTHEDMemma Wed 19-Aug-09 08:36:11

thank you all so much.

Im going to spend the day looking for the best deal.

thanks so much

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