Post-Christmas debt hangover? Here’s how a balance transfer credit card can help

Christmas may be a joyous occasion but it's also a time of year where many of us overspend.

We won't judge though. Even the most financially astute person would find it difficult to stick to a budget when the festive commercials and Christmas jingles were on overdrive.

So, if you feel you spent a little too much this month, you probably won't be looking forward to January's credit card statement — especially if you don't have the means to immediately pay off your balance.

However if that's you then don't despair. A balance transfer credit card may be exactly what you're looking for. These specialist type of credit cards can help cut the interest rate on your existing debts to zero, making it easier to clear your balance.

Here's everything you need to know about these cards, and how you can use one to become debt-free in 2023.

How much did households spend over Christmas?

According to a recent YouGov survey, the average Briton spent more than £600 on Christmas this year with credit cards no doubt being used for much of this spending.

However, don't believe the myth that credit cards are inherently bad. They aren't. In fact, they can actually be the cheapest way to borrow — as long as you spend on a card that’s interest-free, make (at least) the minimum monthly payment, and you fully repay what you owe before your card's 0% period comes to an end.

The problem with credit cards, however, is that if you don’t clear your balance before any 0% period ends — or you don’t have an interest-free card to start with — then they can actually turn out to be one of THE most expensive ways to borrow.

What’s the typical interest rate on credit card debt?

The interest payable on credit card debt is known as the Annual Percentage Rate (APR). You’ll see this rate displayed prominently when you compare credit cards.

The APR applies to any balance that you don’t fully repay by the end of the month, unless you've a 0% card (in which case no interest will apply to your balance for the duration of the 0% term).

APR’s on non-0% cards are often very high, with a typical figure sitting somewhere between 29.9% and 39.9%. Make no bones about it, this is large amount of interest to pay. For example, say you borrow £1,000 on a card for a year and you don’t repay anything, your debt will have ballooned to almost £1,400 with an APR as high as this.

If you’re unable to keep up with the high interest charged on credit card debt, then you’re probably at risk of a debt spiral. This is where debts become unmanageable and impossible to keep up with.

If you’re in this situation then the first thing to do is to speak with your lender who may be able to sort out a repayment plan. Getting it sorted early is always the best strategy when it comes to dealing with debt.

How can a balance transfer help cut what you owe?

A balance transfer is a specialist type of credit card that allows you to shift over debts from other credit cards.

So if you’re currently paying interest on existing credit card debt, move it to a 0% balance transfer and you won’t have to pay any interest on your balance for the duration of the interest-free period. This will allow you to chop away at your balance, making it possible for you to become free of debt sooner.

How a balance transfer can save you £1000’s in interest

Say you have a balance of £5,000 on a credit card with an interest rate (APR) of 29.9% and you repay a fixed £200 each month. Under this scenario it will take you 3 years and 1 month to fully clear your debt. Frighteningly, you’ll have paid a total of £2,350 in interest for borrowing £5,000!

However, if you instead got yourself a new 25 month 0% balance transfer card and shifted over all of your debt while keeping repayments at £200 per month, you’ll have cleared your balance within 2 years and 1 month. This means you’ll have wiped your debt one year earlier as all of your repayments will have gone towards reducing the amount you owe, rather than servicing interest.

Plus, as you'd have cleared your balance within the 25 month 0% term, you wouldn’t have had to pay any interest either, though it’s probably you'll have had to pay a small transfer fee.

Note: Not all balance transfer cards have a transfer fee though the longest cards generally do.

What balance transfer credit cards are available right now?

With the cost of borrowing rising, there are real fears that balance transfer deals will soon be cut back. In fact, this is already happening, with some market-leading offers becoming less generous over the past month or so.

The good news is that, for now at least, there are still a number of decent 0% balance transfer deals out there. However, if you think a balance transfer credit card is for you then it’s probably best not to wait. That's because it’s more likely deals will continue to worsen rather than improve.

Right now, the longest 0% balance transfer card open to all is from Sainsbury’s Bank. Its card offers up to 30 interest-free months, with a 2.89% transfer fee. (Some poorer credit scorers may be offered just 22 months at 0%, and/or a higher 4% transfer fee).

If you don’t need such a long period to clear your debts, then you may wish to explore balance transfer cards without a fee. The longest no fee card available is also from Sainsbury’s Bank. Its card offers up to 17 months at 0%. (We say ‘up to’ as some poorer credit scores may be offered just 12 months at 0%, and/or may have to pay a 1% transfer fee).

The representative APR on both of these cards is 21.9%. For more details, plus other options, take a look at our best balance transfer credit cards guide.