UK Online Balance Transfers - need reassuring...have you done one?

Question

I want to do a BT (getting bent over on the interest!) so after some investigation I went to do one on-line... then got nervous!

It goes on about T&C's, my right to cancel within 7 days blah blah and I suddenly thought maybe it's not a good idea.

Logically I know that financially it makes sense, but I am c.rap with money stuff and suddenly felt I was out of my depth.

Its all pretty straightforward right? I mean, how bad can it be? Have you found doing a BT online easy, and ultimately helpful in sorting out your finances?

Honest answers appreciated.

Thanks :-)

Answer 1

Done a couple, it's easy.  Thing is you don't want to change too often, it will affect your credit rating. Since this is probably your first time, it should be OK.  

If you really don't want to B.T., call your current card provider pretending that you're considering one, then ask if they have any special rates on offer for "loyal customers"...apparently as long as you make your minimum payments, some will drop their interest rates just to keep your business.  

www.moneysavingexpert.com has lots of great ideas about this (much more than I know)...

Answer 2

They're easy and reliable.  Watch out though, there are lots of traps.  Here's a couple:

1) BT fee

You'll almost certainly be charged a fee, 3% is the norm these days.  

2) What's called the payment hierarchy

Your balance is paid down usually with the lowest rate balance being paid first.  What this means is that if you get a 0% for 12 months BT, and then spend £100/month on the card, the 0% balance will pay off first, and all the month's £100's will soon add up to a sizeable sum on which you're being charged interest at 20%.  

That's why you should never take out a BT with your current credit card company.  If you have a BT balance, then use that card ONLY for the BT.  Nevr, ever spend on it.  Cut the card up as soon as you get it. Burn the PIN number without looking at it.

The other pitfall is that if you take a BT and pay the minimum fee, when the promotional rate expires (if it's 0% for 12 months then that's in 12 months time) then any balance you haven't paid off will be charge at the full rate (20% or so)  say you took out £1,000 at 0% for 12 months with a 3% fee, if your monthly minimum repayment was 2.5% then by the end of the 12 months you'd still owe about £750, and 20% interest would mean you were paying 20% on that. If you carried on paying the minimum payment then a year later you would still owe £690.

As you say you're no good with money, you ahve to ask yourself would you realistically pay more than the minimum payment?  Would you set a standing order up to pay 1/12th of the original BT each month?

If you really want to pay it off, bearing in mind you struggle with money, the safest way is through a loan.  It may seem to cost more in the short-term, but if you're paying a rate of say 9.9% over 2 years, it would almost certainly work out cheaper than having a BT at 0% with the rate changing to 20% after a year.  If you took out a 2 year loan at 9.9%, at the end of the 2 years you would have paid the loan off. If you have the BT you would still owe more than half what you borrowed.  Paying the loan off would also improve your credit rating.

The main advantage of the loan for you is that (painful as it may be) you have to pay a high amount each month to pay the balance down.  The credit card companies love you to only pay 2.5% off each month, if they charge 1.5% interest per month then you're only paying off 1% of the balance each month, which means it can take 10-20 years to pay the credit card off.

BT's should only ever be taken if you know that you will be able to pay the balance in full at the end of the promotional rate period.  Otherwise you're making things worse for yourself.  Taking another 0% card at the end of the period shouldn't be an option, it's quite likely that there will not be any 0% offers in a years time the way things are going for banks.  

In addition,. if it's possible or likely (and be honest with yourself)  that you won't try to pay the balance down as much as you should and you have to take another BT as well as having this one, remember this;  You think you may be able to do your best, but the world is full of bankrupt people who took a BT thinking that. Few people take out a BT thinking they'll not be able to pay it back and go bankrupt. I work in the industry and I see it every day.

So, hope this helps, but my best advice is get a loan instead. They're just as easy to do as a BT online and for most people far, far cheaper in the long run.  If you wonder why the banks don't tell you this, remember that they make far more money from credit cards than they do loans.

If you're doubtful of the soundness of my advice, I helped a friend 18 months ago; he had debts of £15,000 and was in danger of being made bankrupt.  I gave him similar advice.    He now has a debt of less than £1,000 and is hoping to have cleared that by October. It's not been easy for him but now he's done it he's a different person, all that stress he used to have when te bills arrived each month has gone.

Good luck!