14th September 2015
Consumers finding that they are drowning in bank account charges for being in the red could should look to using a money transfer credit card to pay off their overdraft, advises MoneySuperMarket.com
The switching site highlighted that those with an overdraft of £1,500 being charged a typical interest rate of 19.3% would be paying out 79p per day – amounting to £288 in interest over 12-months.
However, clearing the £1,500 with for example the MBNA Platinum Credit Card, which offers 24 months at 0% on money transfers subject to a 1.89% fee, exclusively available through MoneySuperMarket would only incur a fee of £28.35, saving around £260 in interest over the year.
For those who need to make the repayment amounts more manageable, taking a card with a lengthy 0% MT duration could be the most suitable option. These cards tend to come with a higher up front transfer fee but do mean that you can make more, smaller repayments over the term. For example, Virgin Money’s 37 month Balance Transfer Credit Card provides over three years of 0% interest on money transfers, and charges 4% of the balance.
Another option is take out a card which does not charge a transfer fee, meaning no upfront cost, for money transfers and instead has a low APR rate applied to the balance. MBNA has this week launched its Everyday Plus American Express® Credit Card which has a 0% fee but an APR of 7.4%. Using this card to clear a £1,500 overdraft balance over 12 months would cost around £60 in interest, with monthly repayments of around £130.
Kevin Mountford, banking expert at MoneySuperMarket, said: “If you are organised, money transfer credit cards can provide a quick, cost-effective way of paying off an existing overdraft. With some offering lengthy introductory rates, it is much cheaper to make a money transfer to your current account than to take out a loan as you can avoid paying interest on what you owe for a considerable amount of time.
However, he added it is vital people understand exactly how these cards work. Even though you are effectively putting cash into your bank account, never simply withdraw it from an ATM.
“Once accepted for one of the specialist cards that offer the service, call them up and ask for a ‘money transfer’ to be made to your current account. Once done, ensure you set up fixed monthly payments of a high enough amount to repay the credit card before any interest free period ends, otherwise you’ll start paying a hefty amount of interest,” added Mountford.
If you know you’re not going to be able to pay off the balance in time you should consider applying for a credit card that offers a low rate of interest for the life of the debt, rather than a 0% deal for a limited period only.
Mountford said: “There are only a limited number of credit cards which allow money transfers, and the terms and conditions on the ones that do can change, so it’s always a good idea to compare all available deals to make sure you find the best card to suit your needs.”