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17 Jan 2020

Interest-free balance transfer credit card deals hit record low

Find out what action you can take to get back in the black

January is a peak time to look for a 0% balance transfer credit cards to clear the build-up of Christmas debt. But the deals are getting scarcer as the deadline to suspend cards with long-term debts looms.

According to Totally Money cardholders made 701,000 transfers worth £1.54bn in January 2019. This amounts to shifting debt worth an average of £2,200.

0% balance transfer cards can help you pay off your debts, as you won't have to pay interest on top of your regular repayments

However, Moneyfacts data shows that the number of 0% balance transfer credit cards is at the lowest level since its records began in 2007 and the length of interest-free deals has also shrunk.

January 2017January 2018January 2019January 2020
Number of interest-free deals122998476
Average interest-free balance transfer term (days)659632564536

The scarcity of deals comes as new rules introduced by the Financial Conduct Authority (FCA) start to put more pressure on credit card companies to protect customers that have been in debt longer than 18 months, which could mean suspending some accounts as soon as February.

Here, Which? explains the changes coming for credit card borrowers, how a balance transfer credit card could help and the best deals available right now.

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Changes coming for credit card borrowers

The FCA set new rules for credit card firms in 2018 after it found more than three million people in the UK struggle with persistent credit card debt.

It found these borrowers are paying an average of £2.50 in interest and charges for every £1 of debt they repay.

You may be in persistent debt if you've paid more interest and charges than what you've repaid of your borrowing over an 18-month period.

Since 1 September 2018, credit card companies have had to send letters to borrowers identified as being in persistent debt. The first warning letter is triggered at 18 months, then 27 months, but after 36 months the credit card firm must offer customers a plan to repay more quickly.

This deadline is February 2020. Firms can cut, waive or cancel interest, fees and charges if you are struggling to repay. But ultimately such a plan may mean your repayment amounts rise and your account may be suspended to avoid you spending any more.

Under the new rules, the FCA estimates that two million customers will move to faster repayments before they hit 36 months and around 1.4 million will do so at 36 months. Overall, the FCA estimated that customers could save between £310m and £1.3bn per year in reduced interest charges.

Should you use a balance transfer credit card?

If you have credit card debt that is costing you interest every month that you can't clear straight away it's probably worth investigating balance transfer deals.

These allow you to move debt, usually for a one-off fee for each balance transfer you perform, and pay no interest for a set period of time.

By shifting your debt and freezing interest you can focus all of your repayments on paying down your debt.

The best balance transfer deals

Here are the longest-lasting deals on the market right now along with the cost of making a £2,200 transfer.

We've ordered the table by the length of the deal and then cost of the balance transfer.

Credit card0% balance transfer periodBalance transfer feeCost moving £2,200Representative APR
Sainsbury's Bank Balance transfer Credit Card29 months2.74%£60.2819.9%
Halifax 29 Month Balance Transfer Credit Card29 months3%£6619.9%
Virgin Money Balance Transfer Credit Card29 months3%£6621.9%-25.9%
Barclaycard Platinum 28-Month Balance Transfer Credit Card28 months1.75%£38.5021.9%
Tesco Clubcard Credit Card for Balance Transfers and Money Transfers28 months2.98%£65.5619.9%
Lloyds Bank Platinum 28-Month Balance Transfer Credit Card28 months3%£6619.9%

Source: Which? Money Compare. Deals correct as of 16 January 2020.

Don't just look at the length or cost of the deal - a provider with excellent customer service can also make a difference.

Luckily, Which? has rated 29 of the biggest credit card providers to help you understand what they're like for customer service, charges and benefits, before you apply.

How to clear your debt with a 0% balance transfer deal

Once you get a 0% balance transfer credit card you need to follow some golden rules to get debt-free.

Don't keep spending

Once you clear your credit card/s with a balance transfer resist the temptation to spend on them again.

Credit cards - unlike other forms of borrowing - offer 'revolving credit', which means when you pay off a bit, your limit is restored to spend again.

Keep the old card at home or cancel it to avoid spending on it again.

Pay more than the minimum

The minimum repayment is the least you can repay on your credit card to avoid a penalty.

However, if you only make the minimum payment, it will take you longer to pay off and could cost you more in interest if you don't have a 0% deal.

You can see how much changing the monthly repayment on your credit card bill can impact the time it takes to clear it using the credit card calculator below.

Set a reminder on the end date

To avoid reverting to the standard interest rate, it's important to repay your balance in full before the 0% introductory balance transfer offer comes to an end.

So, it's worth setting up a direct debit based on the monthly amount needed to repay the debt within the 0% period.

Alternatively set a reminder of when the deal ends to give yourself enough time to make other arrangements if you don't manage it.

Where to find free debt help

If you're struggling to get in control of your credit card or other debts, you should seek help.

There are a variety of organisations you can use to get free advice on how to take control of your finances, such as the StepChange Debt Charity or Citizens Advice.

Find out more: where to get free debt advice