Breathe Easy With This Balance Transfer

Laura Starkey praises a card that offers permanent relief from sky-high interest rates.

This article was first sent to Fools as an email in our 'Afternoon' series.

Last week, I wrote about my favourite credit card of 2008: the Virgin Money MasterCard Credit Card. I think it offers a great deal for anyone with interest bearing debts they want to beat down, and has several great features.

Yet, in spite of its advantages, the Virgin Money card can only offer temporary respite from interest charges. And at a time like this, that might not be enough reassurance for some people.

Economic uncertainty

It's no secret that, economically, the UK is afloat on uncharted waters. The credit crunch has now bitten deep, and it's widely acknowledged that recession isn't far away.

While in theory the government's bailout of our banks should help to loosen up lending, there's no guarantee when, or if, this will happen.

In my opinion, this means that anyone relying on using a series of 0% balance transfers to clear an old debt can't be completely confident their plan will work.

Why not 0%?

As I've already made clear, I'm a big fan of 0% balance transfer deals. However, they aren't appropriate for everyone.

One disadvantage of continually shifting debts from one 0% card to another is that it requires organisation. If you forget to apply for a new balance transfer card as you approach the end of an existing promotional period, you'll find yourself paying interest again -- probably at around 16.5%.

In addition, successful credit card tarting is only possible if you can get enough 0% deals to sustain it. While it's never been 100% safe to assume that you will, I think it's now even less certain.

In practice, if you had credit card debt of £5,000 and could afford to pay off a maximum of £100 per month, you might need to use three or four different 0% deals to clear the balance in full. But if you found yourself unable to obtain a new balance transfer deal halfway through the process, you could end up with thousands of pounds stuck on a credit card charging a high rate of interest.

A clever commitment

It's for these reasons that I think lifetime balance transfer deals are a great option for some Fools -- especially those with sizeable debts that will take a while to pay off.

With a lifetime balance transfer deal, you can move existing debt to a card offering an affordable rate of interest that will last until the entire amount has been paid off.

What's more, you only need to apply for one card, and you only need to transfer your balance(s) once. This means less hassle, fewer credit checks -- and no worry that, when one deal expires, you'll have to scour the market for another.

A lovely long-term deal

In my opinion, the best lifetime balance transfer card on the market right now is the Barclaycard Platinum Exclusive Long Term BT MasterCard/Visa. The card's name is rather long-winded, but luckily so is the deal it offers!

The Barclaycard Platinum comes with an interest rate of 6.3%, which will last for as long as it takes you to clear any balance you transfer to the card. That's the lowest rate on the market at the moment -- and you won't be charged a balance transfer fee for shifting debts to the Barclaycard Platinum.

But best of all, by transferring a balance to this card you could save hundreds or even thousands of pounds in interest.

If an individual shifted £5,000 of debt to the Barclaycard Platinum and paid off £100 per month, the balance would take 59 months to clear completely and cost £786 in interest.

However, leaving the debt on an `average' credit card charging 16.5% would inflate the time needed to pay off the debt by a whopping 23 months! Even worse, paying off this card would cost an incredible £3,032 in interest overall.

By opting for the Barclaycard lifetime balance transfer, someone in this situation could save a total of £2,246. I think that's a huge amount of money, which could make a real difference to most peoples' budgets in times like these.

Things to remember

First of all, it's worth being aware that the maximum amount Barclaycard will allow customers to transfer to this card is usually £5,000. Customers can request a larger balance transfer -- but if this is approved, the interest rate on the balance above £5,000 will jump to 6.9%.

Also, like many lenders, Barclaycard will not accept balance transfers from other credit cards or loans within its `stable'. This means that if the balance you'd like to transfer is already on a Barclaycard, you'll need to find a different place to shift it to.

Also, don't forget that Barclaycard insist you complete any balance transfers within 60 days of your credit card account opening.

Finally, it's vital to remember that a lifetime balance transfer shouldn't last a lifetime -- but it might if you only pay off the minimum monthly repayment (MMR)! To avoid this, I'd suggest setting up a direct debit to pay a fixed amount off your debt every month.

Switch and save

Lifetime balance transfers aren't as cheap as 0% deals -- but as you can see, opting for a good one could still save you a significant sum.

And in the end, I think the simplicity and security they offer will, for some people, be worth its weight in gold. With difficult days ahead, it pays to have peace of mind.

> Compare credit cards at The Motley Fool.