Five top tips for a successful balance transfer

If you know you're going to be left with a stack of debt on your credit card after Christmas, now's the time to do something about it!

However hard you try, it can be difficult not to spend too much at Christmas. But if you know you're going to be wallowing in debt by the end of it, don't wait until the New Year to do something about it - sort out your finances now!

If you've spent a lot on your credit card and you know you can't afford to pay off the balance in full, you might be worried about how much interest you're going to be hit with.

The best solution to this problem is to transfer your debt onto a 0% balance transfer credit card - and that way you won't have to pay any interest on the debt for a year or more.

Sounds pretty good, right?

But if you're going to do this, don't wait until the New Year to apply. That's because applying for a 0% balance transfer card and waiting for the balance transfer to go through can take some time. Virgin, for example, advises that it can take five to seven working days for a balance transfer to go through once your application has been approved.

So if you don't want to be stuck paying out interest in the New Year, make sure you get organised and start applying now!

To give you some help when it comes to applying for your card, here are five top tips for a successful balance transfer:

1) Be brand aware

When applying for a balance transfer, you'll find that you can't transfer debts between cards issued by the same company.

For example, if you already have a credit card with Norwich & Peterborough, you won't be able to transfer your debts to the Virgin Credit card because both cards are issued by MBNA.

And if you've got a credit card with Mint, you won't be able to shift your debts to NatWest, because both cards are issued by RBS.

So this can be a tad inconvenient - particularly because it's not always clear which companies issue which cards. Luckily, however, you can find a comprehensive list of which cards belong to which providers in The secret truth about your credit card.

So before you apply for a particular credit card, make sure you check to see whether you actually can.

2) Consider all the benefits

Most 0% balance transfer cards only allow you to transfer debt from one credit card to another. However, a select few allow you to transfer part of your credit limit straight into your current account - as a cash or money transfer.

The Virgin Credit Card is one such card - so you can pay off an expensive loan or overdraft and still enjoy the same promotional 0% interest rate that you would on standard balance transfers.

Just be warned, however, that balance transfers do come with a fee - usually around 3% for a standard balance transfer, and around 4% for a money transfer.

3) Watch out for negative payment hierarchy

Negative payment hierarchy is a nasty trick used by the vast majority of credit cards. In a nutshell, it means that any payments you make on your credit card will go towards your cheapest debt first, while the most expensive debt will be paid off last.

So say you had a credit card which offered a six month interest-free period on balance transfers, but charged a rate of 18.9% on purchases. Let's say you transferred a balance onto the card, made a purchase for £100, and then made a payment towards your card for £100.

While you might think that the £100 would go towards your purchase and clear the debt, frustratingly, this isn't the case. Instead, the payment would go towards your interest-free balance transfer. Meanwhile, your £100 purchase would start racking up interest.

The best way to avoid negative payment hierarchy is to use one credit card for balance transfers and a separate one for purchases. So if you are transferring a debt over to a 0% balance transfer credit card, cut the card up the moment you receive it to ensure you won't be tempted to spend on it.

Alternatively, you could opt for a credit card which offers an equal 0% period for balance transfers and purchases. For example, the Sainsbury's Credit Card offers an interest-free period on both balance transfers and purchases for 10 months, and the Halifax All In One MasterCard offers nine months interest-free on both deals.

4) Getting accepted

When you're applying for a 0% balance transfer credit card, the last thing you want is for your application to be rejected.

So it can be a good idea to check your credit rating before applying for a credit card to ensure there are no marks against your name. You can get a free credit report from Experian if you sign up for a 30-day trial. If you find you have a low credit score, there are various steps you can take to improve it. Read Improve your credit score: the quick dos and don'ts for more information.

However, while this might seem straight-forward, sometimes getting rejected for credit can be completely out of your hands. As Jane Baker explains in The secret reason banks reject you for credit, every year between mid-August and November, the annual canvass takes place where new registration forms are delivered to every home in Britain so the electoral roll can be updated en masse. 

So this means the electoral roll won't be updated during that time, and instead, any changes sent to local registration offices will be stockpiled until 1 December. This means that if you move house during this period and apply for credit, it's very likely you'll be rejected. That's because the new address you give on your application won't match with your old address which is still on the electoral roll.  

Of course, this won't affect you right now, because the annual canvass is over for another year, but it's certainly worth bearing in mind for the future. If you know you are likely to move home during that period, make sure you apply for credit in advance - before you leave your old address.

5) Make your payments on time

Once you've successfully got your hands on a 0% balance transfer credit card, you need to ensure you remember to make your monthly payment.

If you completely forget, or you're late, your card provider usually has the right to cancel your 0% deal there and then - meaning that instead, you'll be hit with an interest rate of around 16%. Ouch. Missing payments could also have a negative impact on your credit record.

So make sure you always remember to make your payment on time - a good way to do this is to set up a direct debit to automatically make the minimum payment each month - or preferably more than the minimum if you can afford it.

Finally, don't forget that if you'd like more help paying off your credit card debts, lovemoney.com can help. First, adopt this goal: Pay off credit card debts. Next, watch this video: The cost of credit card debt. And then why not have a wander over to Q&A and ask other lovemoney.com members for advice?

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