Six and a half million money wise customers will switch to more competitive credit card offerings this year, representing a 5% annual increase in switching.
New research from Abbey found that the average amount transferred is around £1,710, meaning a massive £11 billion will be on the move in the coming months.
Clearly customers are waking up to the importance of making their plastic work for them, instead of their bank. We recommend the best cards to suit your financial situation.
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If you need to clear old debt
Most switchers (51%) do so in order to take advantage of introductory interest free periods on balance transfers.
There were fears that the clamp down on unfair bank charges would see banks pull these deals from the market in order to recoup some of their lost revenue.
Thankfully these proved wide of the mark and if anything the interest free periods have actually been extended, although they do tend to come with higher transfers fees (basically the lenders’ way of ensuring they at least make some money out of us).
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No need to pay interest on existing balances
If you are looking to move debt that is racking up interest, the Virgin Mastercard offers 15 months interest free on transfers (reverting to a typical APR of 15.9% thereafter), which is pretty much the longest deal available at present.
The downside is it comes with a fairly hefty 2.98% transfer fee, but this pales into insignificance compared to the savings you’ll make.
Still, if you are able to pay off your debt in a shorter time frame you can save even more by switching to a Capital One Platinum card, which only charges a 1.7% fee and offers 12 months interest free.
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If you have new debt coming in
Got some impending bills on the horizon? Make sure you don’t pay interest on them by opening a card offering an introductory rate on new purchases and using that to pay for it.
According to Abbey, almost a third (29%) of switchers do so for this very reason. The best card in this category is also the newest one, a good indication that competition is working in the customer’s favour. The Halifax Purchase card offers 15 months interest free with a 3% charge and a 14.9% typical APR.
Again if you are able to pay off the debt quicker, then both the Tesco Mastercard and NatWest Classic will work out cheaper, charging a 2% transfer fee with a 12 month introductory rate.
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If you want a card for life
All of the above cards are extremely competitive in the short run, but they revert to a high interest rate afterwards meaning they effectively have an expiry date. You wouldn’t drink sour milk, so don’t spend on a card charging a high interest rate.
If you simply could not be bothered being a rate tart - someone who switches between cards before the introductory rate expires in order to avoid interest – then a card offering a low rate for life is a simpler, if slightly more expensive, option.
So what rate should you be looking for? As a benchmark, the average interest rate on credit cards currently stands at 17.27%, so cards offering anything near that should be avoided. Barclay’s Simplicity card is probably the best out there with a typical APR of just 6.8% for life, while the Halifax Flat Rate card offers a slightly higher 8.9% rate.
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If you want a cash-back card
While there should always be a question mark over a card which falls under the ‘more you spend the more you save’ category, some may consider the notion of getting some money back on everything the spend appealing.
Amazingly, Abbey says one in three customers who switch cards do so with this in mind. If you are one of them, Abbey is offering 5% cash-back at all major supermarkets for up to £1,000 of spending on cards until the 31 January 2008.
But Abbey’s card, along with all other cash-back offerings, comes with a significant downside.
You see, its introductory rate on new purchases expires after just three months, reverting to a minimum APR of 15.9% (depending on your credit history), which will eat a massive hole in the cash-back savings.
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So what are you waiting for?
As we mentioned at the start, ever more Brits are taking advantage of more competitive credit cards, but there are still far too many whose inertia is costing them a packet – the British Bankers’ Association says that three quarters (74.3%) of credit card balances are bearing interest.
Upgrading your plastic is the first step to healthy finances. With the pricey holiday season coming up, there’s absolutely no point in shopping around for the best deals if you’re going to negate all your hard work by leaving the debt to rack up interest at an eye-watering rate.
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