The cards are stacked against you

It’s the time of year when most people will be dreading the day their credit card bill hits the doormat, unveiling the true extent of their festive spend.

If you do find yourself unable to repay this in full, or are perhaps still carrying over a balance from 2007, there are still plenty of balance transfer deals to be found. But getting one might not be a simple as you think.

Lisa Taylor, analyst at Moneyfacts.co.uk comments: “With almost 200 balance transfer deals on the market, you might be fooled into thinking you have an endless choice. But it could not be further from the truth. When looking for a new provider to take over your balance, there are two hurdles to jump. Firstly you cannot transfer balances between cards backed by the same provider, or which is part of the same banking group. For example, not only does MBNA issue its own cards, it also backs Virgin Money and Alliance & Leicester cards, to name a couple.

“Card backers are looking for new money, rather than recycling balances between its brands.

“Secondly, most deals are only available to new customers, so you can’t afford to complete the circuit of card providers too frequently. Typically your account will need to have been closed between 12 and 24 months before you can be considered a new customer again.

“75% of the balance transfer deals available today are offered by just five providers, with Co-operative Bank taking a 26% slice and MBNA 27%. So in reality, while 45-card brands offer balance transfer deals, when shopping for a new deal your choice is more than halved, limited to only 17 providers.

“It’s important to check out the small print of any balance transfer deal, and establish who is the credit provider for both your existing and new credit card deal, otherwise you could find yourself with a new card and your balance transfer being refused or charged at the standard rate.

“Not only do you have to navigate through the maze of credit providers and banking groups to find the deal for you, with the tightening of credit criteria you might also find it more difficult to be accepted or you may be offered a much lower credit limit.

“This time last year we saw the beginning of a new chapter in the long running 0% credit card war which took the length of balance transfer deals to new levels. However this year, the market has remained fairly quiet, with the same long-standing contenders maintaining their existing deals.

“All this said, it’s still worth investing time to find a competitive home for any existing balance, especially when we consider rates have been rising over the last few months and this is likely to continue in 2008.

“The average standard purchase rate today is around 16%. By securing a 0% deal for 12 months (assuming you make a minimum repayment of 2% / £5) you could save around £140 in interest on a £1K balance. And if you budgeted to repay the balance in full over the 0% period, then the interest saving is still a ‘not to be sniffed at’ £64.

“But you must consider you will more than likely incur a balance transfer fee. The average today is 2.56%, and 96% of such fees are uncapped.

“If you are only looking to borrow for a few months, you may be better off paying an average interest rate or even better finding yourself a low rate card or a low rate balance transfer deal. These typically don’t charge an upfront fee.

“Just because you may have to consider a few more factors, and perhaps have to spend a little more time in getting the best deal, don’t become complacent and accept the deal your existing provider is offering. There is still plenty of potential to find a good deal you just might have to work a bit harder to get one.”