Money transfer cards are a service that allow you to take funds from your credit card and deposit it straight into your checking account. You might find this useful if you’re looking for a way to pay off your overdraft or get some quick cash for an emergency. It’s important to be careful though – the devil is in the detail when signing up for a card like this. Make sure you know exactly what you’re getting yourself in for.
The Risks of Money Transfer Credit Cards
The interest rate is a key point to consider when dealing with any form of borrowed money – as it is essentially the “cost”. An interest rate of around 20% a year is quite common with any form of credit/debit card debt. This is relatively expensive (comparatively, a mortgage costs around 6-8%), and should therefore be used only when necessary. If you are paying off an overdraft, make sure that the new card is a lower rate. You wouldn’t want to use a 22% credit card to pay off an overdraft being charged 15% – you’d be losing money.
When signing up for a card, ensure that there are no hidden requirements, such as repayment terms or minimum amounts. Failing to meet these requirements will likely cost you a fee.
A number of providers will offer “0% interest terms”. After signing up to a card, for a certain period of time (depending on your provider), you won’t pay any interest. This is legitimate, but is designed to entice you into getting “comfortable” with your debt, so that you can be charged 20% the minute this grace period ends. It’s also important to note that there is usually a fee to change to such cards, so “0%” is a little misleading. Make sure you understand any other fees you may be charged along the way also – some providers charge annual management fees, which stack up quite quickly on top of the interest payments.
The Best Money Transfer Cards in the UK
Fluid offers a card at 18.9%, with a 0% term for up to 26 months. They charge a 2.89% handling fee. (See: http://fluid.co.uk/ for more details).
Comparatively, MBNA offers a similar deal with 18.9% and a 2.79% handling fee and a 33 month 0% term. (See: http://www.mbna.co.uk/ for more details)
The AA offers 0% term of 12 months, but a much lower rate of 16.9% with a 3% fee. It also offers bonuses for AA members, including a rewards scheme. (See: http://www.theaa.com/credit-card/rewards-channel-index.jsp?name=MSM&mc=ECO-UK-44444-11270 for more details).
Keep in mind that these rates are likely to differ based on your personal credit history and circumstances, so it pays to shop around to see which can offer you the best deal, rather than simply relying on the advertised figures. Balances must be transferred within 60 days for Fluid and MBNA (90 days with the AA card) to take advantage of the 0% rate – otherwise you’ll be paying full interest. All three cards have a limit of £1200.
It’s important to remember that this is expensive debt. Make sure you’re only spending what you can afford to repay, and that it is being spent on essentials rather than luxuries. There are other options if money transfer credit cards seem too daunting – secured personal loans are often cheaper, provided you have a good credit history.