Your comments help us improve our websiteSend your feedback
Using a credit card for long-term debt repayments
A new balance transfer card has been launched that offers an interest-free period of 40 months.
The Tesco credit card offers 0% interest on balance transfers for 40 months, with a fee of 2.69% (representative APR 18.9% variable). If you were using the card to transfer a balance of £2,000, for example, this fee would work out at £53.80. However, the offer is limited and the application deadline is April 28th 2016.
But Tesco isn’t the only lender on the market offering a long-term interest-free period on balance transfers. Previously, Halifax offered 0% interest for 40 months with a slightly higher fee of 2.85%, although the application deadline for this card passed on March 7th. Elsewhere, Virgin has a balance transfer card (18.9% APR representative variable) with an interest-free period of 39 months and a fee of 2.89% (£57.80 on a transfer of £2,000) and MBNA’s Platinum Credit Card (18.9% APR representative variable) offers 0% on balance transfers for 39 months with a fee of 2.98% (£59.60 for a £2,000 balance).
Sticking at 0% for longer
If you’re considering a balance transfer card to consolidate your debts, it makes sense to look for one that offers a 0% introductory deal. That way you can focus on paying down your debts and you know that every repayment you make goes towards this rather than interest.
When you have a number of small credit agreements with different lenders, different repayment dates and different interest rates, it can get confusing. Consolidating these debts by paying them off with one credit card or loan and then making a single repayment a month can make things more straightforward – and it can also save you money on interest in the long-term, if you secure a 0% interest offer.
The drawback of these cards is that they don’t always provide the lowest interest rates once that 0% period comes to an end. So, if you’re planning to use one, you should carefully manage your repayment schedule and try to clear the balance before the 0% deal comes to an end. If this isn’t possible, you could look for a new 0% balance transfer card as your current deal nears its end and see if you can switch to that when it does.
Another factor that might put you off is the fee. Cards with the longest 0% deals may have a higher balance transfer fee than those with a shorter interest-free period. To weigh up which is the best option, you should work out how much you can afford to pay towards your balance each month, and it may be that a longer interest-free period makes your repayments more comfortable. If this is the case, it might be worth paying the higher fee.
What about my credit history?
Long-term interest-free balance transfer cards are among the best deals on the market, but unfortunately this means not every applicant will be accepted. One of the things taken into account will be your credit history, and if it’s not as positive as you would like, this may stand against you.
However, if you think that consolidating your debts is the right option for you, there are other options available. You could take out a personal loan to pay off your debts and then repay this over a longer period. Keep in mind that because you’re making repayments for longer, you could end up paying more overall when interest is taken into account – but having a single monthly repayment should make things more manageable.
Alternatively, you could use a secured loan to pay off your existing debts. Because this type of loan in secured against your property the interest charged is typically cheaper than that on an unsecured loan. However, if you don’t keep up with your repayments, your home could be at risk.
To find out more about your options when you’re considering debt consolidation, read our guide.