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Seven steps to credit card switching?

Posted 20 March 2016 by Shelley Bowers

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Here’s how you could use a credit card to save you money – just follow our guide to switching.

If you owe money on credit cards, loans, overdrafts or other forms of credit, you may find that switching to a low interest or interest free credit card – if you are eligible for one- could save you money. This blog gives you the ins and outs of credit card balance transfers, so you can make sure you get the best deals for you. 

Credit cards can be a great way of getting what you want right now and paying for it in small amounts over a number of months. So, if you find you need a new washer, that you hadn’t planned nor saved for, a credit card could allow you to get one quickly, without having to wait to save the money you’ll need to pay for it. Then you pay it back a little at a time each month, making things more affordable for you. 

But they can also be a great way for you to save some money on the credit you’ve already borrowed. How does this work? Simple, if you have an overdraft (or other borrowings) that has an interest rate that’s higher than the credit card you’re applying for, you can pay off your overdraft with the credit card and save yourself some pennies in the process. A word of warning though before we start – if you already have a poor credit score, you may want to think carefully about applying for new cards, as rejections could damage your score even further. If you’re not sure what your current credit score is, you can find out using one of the credit reference agencies – Experian, Equifax and Callcredit.

 find-my-solution

So how does this work?     

Well it can work in a number of ways – you can use the cards you already have and request a lower rate of interest, you can apply for a new card with a zero interest period or you can apply for a card with a low rate of interest, that’s fixed for the life of the balance, so over a longer period. 

Step 1 – Think about what you want to do? 

The first question you need to ask yourself is what do you want to achieve? If you think you can pay off your debts fairly quickly, at least within the interest free periods available, you should ty to aim for a 0% interest card. However, if you think it’s going to take you a little longer to get the whole balance paid off, you should think about the lower interest cards out there that lock you into a low rate for the life of the balance. 

Step 2 – Do you have any 0% cards already? 

Step one in the credit card shuffle is to have a look at what you’ve already got. So, get out all your cards and note down the:

• balance 

• credit limit

• interest rate

Now have a look at the card with the lowest rate of interest, do you have any cards with 0% interest with room for a balance transfer? If you do, great. Now you need to find out how much it costs you to transfer balances from one card to another – called a balance transfer fee. If it works out a good deal, i.e. the balance transfer rate is low, you should move as much money from the higher interest cards to the 0% as soon as you can. 

Current balance transfer fees, taken from comparison site Uswitch, are around 2.5-3%. Although some cards offer a 0% balance transfer rate, you’ll often find that the interest free period of these cards is much less. For example, today you can apply for a Virgin credit card with a balance transfer fee of 2.59% that has 40 months interest-free. Or you can apply for a Halifax credit card that has 0% balance transfer fee, but is only interest free for 23 months.  Of course, if you think you can pay back what you owe in 23 months, the Halifax card is the better deal. 

Step 3 – If you don’t ask you don’t get! 

If you don’t have any 0% cards, the next best method is to haggle with your current card providers. Whilst the very best deals are usually reserved for new customers, there are some offers you can access as an existing customer too. But, before you call, you may want to have a look at what offers there are available for new customers with your current card supplier, as well as what offers there are available with rival card providers. You can then use this information to ask for a better deal with your current provider. Don’t be afraid to do a bit of haggling, advise them that you are thinking of leaving them for a rival provider and see what they offer you to stay. Many card providers have a matching policy that allows them to offer you the same interest rate that you can find elsewhere.    

If they’re prepared to lower the rates on their card for you, transfer balances from higher rated cards as soon as you can. Don’t forget to ask if there’s a balance transfer fee applicable too. 

Step 4 – Apply for a new 0% interest card 

If you don’t have any interest free cards and none of your current providers are willing to give you a special rate, the next step would be to apply for a new 0% card. But, before you start applying left, right and centre you should have a look at the eligibility criteria for each card. Why is this important? Because your chances of being accepted for a card will depend on many things. For example, the card that’s classed as the market leading featured deal on Uswitch today, has an eligibility criteria that includes having a good credit score. When you delve further into what this means, it explains that you’ll not be approved if you have CCJs, defaults, you’ve been bankrupt or you have an IVA.    

If you have a less-than-perfect credit score, you should think carefully about applying for any new credit. This is because each time you apply for a credit card, the provider will access your credit file and check your credit score. They’ll use that, along with their own criteria to decide whether to accept your application or not. This checking will leave a note on your credit file that other providers will be able to see. The more applications you have for credit on your file, the less impressed potential providers will be. This is because they’ll likely see multiple applications in a short amount of time as a bit desperate, like you are fishing around to get more credit.    

If you’re not sure what your credit score is, you can, as we mentioned earlier, find out using one of the credit reference agencies Experian, Equifax and Callcredit. And if you think you may be turned down by a credit card provider because of a poor credit score, it’s better to apply for the cards specifically designed for people in your situation. For example, the best balance transfer card for people with a poor credit score is the Capital One Balance Transfer Card, which offers you 0% for six months, which is much less than the other cards, but still worth it, and a balance transfer fee of 3%, which is not very different when compared to normal credit cards..     

Step 5 – Shift to the lowest interest card you’ve got

If none of the options above are available to you, the next best solution is to move as much money as possible to the card with the lowest rate of interest rate you already have. Again, beware the balance transfer fee. Although this may seem like a faff, a drop in interest rates of just a couple of percent can make a big difference in the amount you’ll pay back overall. 

Step 6 – Make expensive debt a priority 

Now that you’ve shifted your debts on the best rated cards, you need to make sure that you pay off the cards with the most expensive rates of interest first. Then, when these are paid off, you should move to the next most expensive and so on. Whilst we don’t normally recommend that you do this, in this situation we’d say only pay the minimum amounts on all your other cards, and push all the extra cash you can towards the expensive card. Once you’ve done that, move onto the next most expensive and so on – this is sometimes known as “snowballing”. 

Step 7 – Keep a note     

The next step in this process is to make sure that you know exactly what balances you have, where they are, what the minimum amounts due are , what the credit limit is and when the interest free periods run out on each card. 

If you can, set up direct debits for all your payments. This way you’ll always pay on time and you’ll always make the minimum payment. The last thing you want is to do is miss any monthly payments – this could cause you all kinds of problems, as some cards only agree to keep the low promotional rates if you make the minimum payment on time and in full each month, and you remain within your credit limit for each card too.    

When you’re getting towards the end of the interest free period, you should think about starting the whole process again, switching your most important debts to another card if you can. So set up reminders on your phone or use a good old fashioned paper calendar, but remember to check it of course. 

So there you have it, seven steps to switching that could save you money. If you think your debts are becoming unmanageable, maybe it’s time to speak to a trained debt advisor. We have advisors ready and waiting to take your call. They can help you find the best debt solution for you. Use the contact us options on the left of the page to get started.     

 

by Shelley Bowers

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.