Transferring your credit card? Watch the hidden cost
‘Churning’ your credit card debt, from one free card to another, has been a popular tactic in recent years - and one I’ve enthusiastically promoted. The strategy is simple - get a credit card with an interest-free period; put all your purchases on it; run it until the interest-free period expires; then transfer it to another free credit card.
Great, except with the credit crunch, lenders have been charging a transfer fee … and if you’re paying 3 or 4% to transfer the balance over, you have to weigh up if it’s worth it. If the interest you’re paying is still less than the interest you’d receive by sticking the money in a savings account then good. But if you’re paying 3% to transfer, then leaving the money you WOULD have used to pay off the card on deposit at 2%, then you’re losing out. And it’s getting harder and harder to make the maths work.
The death knell may have been sounded for free deals anyway. Website The Motley Fool did a survey in early March 2008 that found there were just nine cards offering long-term interest free deals, compared to more than 200 a year earlier. If the lenders can’t themselves borrow enough money to lend out - then they’re hardly going to be giving it away free to us. So if you are looking for credit card deals or transfers just now, look at the total cost of borrowing - it may be cheaper simpler to buy on your debit card.
