Credit Card Shuffle

There's a conspiracy in the credit card world. The fact you don't need new cards to cut your interest is covered up; new card applications are profitable – not just for lenders, but internet price comparison services that earn fees when you get cards through them. My strategy to cut your cost by up to 70% without new cards is ‘the Credit Card Shuffle'.

This is a four-step system that moves your debts between existing, not new, borrowing to the most efficient place. It takes some planning, but pays off massively. Plus it works; in a past TV money makeover I cut a heavily indebted man's interest from £2,700/year to £600/year, WITHOUT new cards.

Who's the 'Shuffle' for?

Answer Yes to any of the following, and the Shuffle could be right up your street...

• Do you get rejected for new credit?
  
  New customer offers are the cheapest option to cut the cost of debt, but often those most in need of cheaper credit don't get accepted. However, don't automatically assume you will fail on application, there's a special section of the balance transfers article on the best poor credit scorers deals.

• Do you want to protect your credit score?
  
  Applying for lots of cards, especially in a short space of time, hits your credit score. The Shuffle can and should be used in conjunction with new cheap debt card applications (see Best Balance Transfers and Best Card For Purchases articles), as it efficiently uses existing debts and means less cards are needed (see full guide to Credit Scoring).

• Can you always meet at least minimum repayments?
  
  If you can, the Shuffle will work. Yet if you consistently can't meet even your minimum outgoings, the Shuffle won't help you. Instead see one of the free debt help agencies like Citizens Advice or Consumer Credit Counselling Service as soon as possible. See the ‘Debt Problems: What to do guide for more details.

The Credit Card Shuffle itself

Each step works both independently and in combination. If one doesn't work, don't be disheartened, try them all.

• Have you got more than one credit/store card...? Try all steps
• Only got one credit card and an overdraft...? Try steps 1, 3 & 4
• Only got a credit card...? Try steps 1 & 4

Step 1: Ask them to cut the rate

Sometimes simply calling and asking for an interest rate reduction works. The credit card market is competitive and interest rate matching policies are common. If you've already got a cheaper rate on another existing card, this should help you batter them down.

Call it up and say...

“I need cheaper debt, but I'd prefer not to leave you”

Step 2: Shift debts around existing cards

Transferring a balance means you move debts to a credit card from another card. For example, if you balance transfer to the Obamacard from the Dubyacard, in practice the Obamacard pays off the Dubyacard for you, so you now owe it the money instead.

Cheap balance transfer offers used to be preserved for introductory offers for new cardholders, but there's now a fight to retain customers so an increasing number now have existing cardholder offers too.
This means expensive debts sitting on a card can be cheaply moved across. A long running example is Barclaycard's existing customer offer, they can shift debts to it at 6.9% (with a one off 2.5% fee) lasting until the entire debt transferred has been paid off (see the Barclaycard loophole guide).

Check your card company's offer before calling.

Some card companies have official set rates, others target individuals, before you make the call it is important to be prepared.

To help we''ve collated a list of the current offers available, while these will change over time, it gives you an idea of the scale of deal you should expect.

Major providers existing customer balance transfer offers

What you need to do...

Simply call up your card provider and ask the following questions:

• Can I move debts from other cards to you? If so, what's the APR (interest rate)?
• What is my current outstanding debt?
• What is my current credit limit? If the balance transfer rate is good, ask to increase it.

Even if there's no special offer rate, this doesn't mean you can't save with step 3.

Step 3: The Shuffle Itself!

At this point, it’s important to take stock of the situation and note down all your debts in a list. To help I’ve prepared a simple worksheet for you to make it easier.

Download the Credit Card Shuffle Work-Sheet
(Right click this and save the file)

Note down all your debts in the worksheet . Ensure your overdraft is included too as it's quite possibly more expensive debt than your credit cards. If you want to factor in personal loans too that’s fine, but be careful as sometimes switching loans to a cheaper interest rate can perversely mean you pay more! Read the Cut the Cost of Existing Loans guide before doing so.

Crucially, also include any new credit you've managed to open, or are considering, so you can work out how to make the debt cheapest; this should free up space to make the shuffle work more effectively. Find the details of the cheapest new card for you in the Best New Balance Transfers article.

Shift the debt to where it’s cheapest

The aim here is to take advantage of the new and existing customer balance transfer offers. This takes a little bit of planning, but the second section of the Credit Card Shuffle Worksheet should help you decide what to do before putting it into action.

Even if special rates aren't available, shift the money to cards with the cheapest standard rate. Just a couple of percent interest drop can make a major difference.

This simple example below should help:

At this point the total debt is £7,000 at an average interest rate of 17.4%. The obvious start point is the 0% for 6 months on the Boriscard, and the aim should be to shift the most expensive debts there up to its credit limit. Thus balance transfer the £500 from the Kencard onto the Boriscard.

There’s then £2,500 left of the Boriscard credit limit, so move the debt from the next most expensive interest rate, the Cameroncard. This leaves £2,500 on the Cameroncard and while the Browncard doesn’t have a special offer, its standard rate is cheaper than the Cameroncard, and with £1,500 left on its credit limit you can shift some more there.

The average interest rate has nearly halved from 17.4% to just 9% for the first six months, saving £300 in interest over that period. After that, while the rate will increase to an average of just under 16%, the lower interest in the first six months will mean more of the repayments have gone towards reducing the actual debt rather than paying the interest.

Plus there’s nothing stopping you shuffling again at that point to keep things cheap, and it’s perfectly possible another company may then be willing to offer you cheap debt.

An advanced trick to up the gain

Balance transfer debts to a card which already has more expensive debts on it, and the provider biases your repayments towards repaying the cheaper debts first, leaving your more expensive debts sitting on the card until ALL the cheaper debts are paid off.

Even with this, you should still save substantially, but there's a trick round it...

• First, shift the existing debts elsewhere.
  
  Before balance transferring, clear as much debt as possible, simply by moving it to another card, EVEN at a higher rate.
  
  
• Then, balance transfer it back.
  
  Return the debt back to the card, along with the debt you planned to move. If you managed to completely clear the card, wait for your statement to show it clears before moving the debt back.

An example will help illustrate this...

Ivor Debt has an Egg* credit card with a £3,000 balance, and an Othercard with a zero balance and a £3,000 credit limit. Normal Egg debts are 16.9%, but annually it allows existing cardholders to move debts from other cards at 0% for five months at the cost of a 2.5% fee.

Ivor can switch the £3,000 to Othercard, then after the statement shows it to be clear, transfer it back to Egg and it would now be at 0% for five months rather than 16.9% APR.

The only danger here is credit card companies do have the right to stop you moving the money back. This rarely happens, but you should be aware.

Step 4: Repay most expensive debts first

This is possibly the most crucial part of the entire shuffle. So important in fact, I'm going to shout...

Start repaying, focussing as much cash as
possible on the most expensive debt first.

This means you should pay just the minimum repayments on all other. less expensive. cards, and throw all spare cash at the dearest to pay it off. Once it's repaid, shift focus to the next highest rate card and continue this until you're debt free. This focusing quickly reduces the interest you pay even if none of the other steps work.

Do include your overdrafts though. With an 18% overdraft and 13% credit card, you're better off spending on the card, paying just its minimum monthly repayments, and using all your income to reduce the overdraft, as it's more expensive.

With normal debts of £3,000 on Barclaycard, £2,000 on Halifax One card and £1,000 on a store card the average interest rate is 18.5%. Repay £300/month and by the time you've cleared the cards in full the interest totals £1,140.

Yet shuffle as much as possible onto Barclaycard's 6.9% existing customer offer and the rest to Halifax at 12.9% and then repay the most expensive debts first, and the average interest rate is reduced to 7.9%, meaning the interest is only £390, around a third of the cost.