Rate Tarting Guide
Can I start?
There is a huge selection of credit cards available and more cards exist than people in the UK. The rates they charge in interest can vary widely. If you have any credit card debt that you cannot repay in full at the end of the month, then you should consider becoming a rate tart. First things first, get a copy of your credit history for £2 or get a free Experian credit report This will help you understand your current commitments.
What are you paying now?
Firstly, retrieve the previous month's credit card statements and find out what you owe and what interest rate you are paying. The rates should be printed on your statement as either a monthly rate or the Annualised Rate or "APR". Don't be fooled by the monthly rate; 1.53% is the same as 19.9% APR.
Get a lower rate
Now you need to get a new product with a lower rate than the existing debt(s). This may not be possible depending on your own personal circumstances, but you may still be able to move debt around your existing banks, or just restructure your payments to pay the highest rate off first. This is also called snowballing.
Take a brief look at our credit card tables. What you need is a credit card with a lower rate than your existing debt, even if this is just for an introductory period of time such as 6 months. You may require more than one depending on what limits they offer. Some of the best offers are 0% credit cards, so we shall focus on these.
Beware: 0% does not you do not have to make any monthly payments, it just means that the payment will not include any interest, but go directly to reducing the outstanding debt.
When choosing a card, it is also recommended you don't apply for a card that is being offered by the same bank as your existing cards or loans. This is because an individual bank will not allow you to transfer debts between their own financial products. Check the supplier table first.
Finally, if you are planning to rate tart to pay off an existing loan, you must check that the original lender will let you pay the debt off early: some won't. You should also check how much you have to pay off, because loan insurance products are often front-loaded which means that you cannot get a rebate on the insurance part of the loan even if you pay it off early. If this is the case, it may not be cost effective to pay off the loan early. In this scenario you could stooz another credit card to help reduce your interest payments.
I've got a 0% card, now what?
Take a note of when the introductory period expires, then use the card to balance transfer(BT) your debt to this new card. If it is a loan, the credit card company needs to offer the facility to repay loans using their BT facility, or offer cheques that you can post to the loan firms.
Now, continue making monthly payments until you approach the date the introductory period expires. As it approaches, go back to the credit card tables (which are updated regularly) and choose another card with a low introductory rate - ideally 0% again. If you are accepted for the card, simply move your debt again, and repeat this process of switching suppliers until the debt is repaid.
As each move of debt is complete, the original card becomes obsolete. Wait until you receive a statement showing a zero balance, and arrange with the bank to cancel and close the account.
You can discuss rate tarting or ask questions in our Forum.