A number of cards allow you to switch the outstanding balance on your existing card or cards and depending on the deal, pay absolutely no interest for the first 6, 9,12 or 14 months.

No so long ago you could move your credit card balance to a new card and incur no penalty. Many cardholders became "rate tarts", moving from one card to the next at the end of the interest free period in order to avoid paying interest completely. This practice cost the card providers money, and as a result most have introduced balance transfer fees of between 2% and 3% of the debt you are transferring.

So transferring a £6,000 debt to a card charging an uncapped 3% balance transfer fee could cost you £180.

However, industry experts believe that despite the introduction of fees, there are still considerable benefits in switching your debt. Rob Kenley, head of cards at financial comparison service Money Supermarket commented "you can still save hundreds of pounds by switching even relatively small balances".

Whether it is worth transferring your balance depends on your situation and the size our your current debt.

Example 1

Assume you have no further spending on a card with a balance of £1,500 charging 15.9% APR and you make the monthly minimum repayment of 3% over a period of 12 months.

Current balance: £1,500 (no additional spending on the card over 12 months)
Current APR: 15.9%
Current minimum repayment: 3% of balance
Total repayment over 12 months: £490.70
Outstanding balance after 12 months: £1,212.25
Reduction in debt over 12 months: £287.75

In comparison if you switch the £1,500 debt to a new card offering 0% for 12 months with a balance transfer fee of 2.5%, the figures would be:

Balance transferred: £1,500 (no additional spending on the card over 12 months)
Balance transfer fee (2.5%): £37.50
Total opening balance: £1537.50
Balance transfer APR (12 months): 0%
Minimum repayment: 3% of balance
Total repayment over 12 months: £470.72
Outstanding balance after 12 months: £1,066.78
Reduction in debt over 12 months: £470.72

Saving in repayments over 12 months compared with current card: £19.98
Additional reduction in outstanding balance after 12 months compared with current card: £145.47
Total savings: £165.45


Example 2

Assume you have no further spending on a card with a balance of £5,000 charging 15.9% APR and you make the monthly minimum repayment of 3% over a period of 12 months.

Current balance: £5,000 (no additional spending on the card over 12 months)
Current APR: 15.9%
Current minimum repayment: 3% of balance
Total repayment over 12 months: £1,635.66
Outstanding balance after 12 months: £4,040.85
Reduction in debt over 12 months: £959.15

In comparison if you switch the £5,000 debt to a new card offering 0% for 12 months with a balance transfer fee of 2.5%, the figures would be:

Balance transferred: £5,000 (no additional spending on the card over 12 months)
Balance transfer fee (2.5%): £125.00
Total opening balance: £5125.00
Balance transfer APR (12 months): 0%
Minimum repayment: 3% of balance
Total repayment over 12 months: £1,569.06
Outstanding balance after 12 months: £3,555.94
Reduction in debt over 12 months: £1444.06

Saving in repayments over 12 months compared with current card: £66.60
Additional reduction in outstanding balance after 12 months compared with current card: £484.91
Total savings: £551.51


In both examples, the best use of the savings you make would be to use them to reduce your debt even further.

Article added: 30/10/07