Balance Transfer Credit Cards: how do they work?
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
23rd November 2020
4 minute read
Have you thought about getting a balance transfer credit card in 2020? Current 0% balance transfer terms are decreasing, meaning that the longer you leave it, the less time you will have to clear your debt. Get started with our top 5 tips for balance transfer cards.
Top 5 tips for balance transfer credit cards
- Always check your eligibility first
- Check the limits before you transfer
- Never miss a payment - set up a direct debit
- Don't spend on it or withdraw cash
- Clear your debt before the 0% deal ends or move onto a new card
If you’ve never had to get a credit card, you might be wondering how to do a balance transfer or how long does a balance transfer take. Thankfully, the Guru has put together a helpful step-by-step guide on how to perform a balance transfer, without worrying about incurring any further interest in the process.
What is a balance transfer?
- A balance transfer is moving an old credit card balance to a new credit card
- With the right credit card, you can pay 0% interest for a limited time
- Allows you to spread the cost of paying off an existing debt
A balance transfer credit card allows you to transfer an amount of money from your old credit card to enable you to pay less interest and give you more time to clear your debt.
Preferably, if you can transfer your debt to a 0% balance transfer credit card, it means you won’t have to pay any interest for a set period. This is an ideal solution for those who might be paying a high rate of interest on a personal loan or purchase credit card and would like to stop paying excessive interest every month.
How to transfer your credit card balance
Conveniently, a balance transfer is relatively straightforward to achieve, with just 5 simple steps between you and a 0% interest credit card. This will ensure your current debt isn’t getting any bigger, and should give you time to pay it off and at the very least make it easier to manage.
However, it does require you to apply for a new credit card in the process. Since this will mean you being credit checked, you may want to think about checking your credit score first, just in case you have a poor credit score.
Even then, by using an eligibility tool such as moneymatcher, this will match you up with credit cards to suit your circumstances, rather than ones that will put your credit score in danger.
Use the following step-by-step process to transfer your balance to a new card:
- Calculate your overall debt – whilst this might not include a larger debt such as your mortgage, you can still combine small loans and credit cards into one balance. Calculate the total before you start applying
- Check the limits of your current credit card - You can usually move debts from multiple cards onto a single balance transfer card. The amount you transfer must be within the credit limit on your new card, minus the fee. Weigh up how much debt you need to pay versus the credit limit you are likely to be offered.
- Check your eligibility for a new card and apply – always check your eligibility using moneymatcher and your credit score to ensure you have the best chance of being accepted
- Make the transfer – as long as you have the details of your old debts you should be able to get your new provider to make the transfer on your behalf. You should be able to do this over the phone or online, depending on your provider
- Keep old card without spending – if your debt has come from an old credit card, there’s nothing stopping you keeping the card and not spending on it. This can actually make gradual improvements to your credit score
How to get the best balance transfer credit cards for you
Since the current balance transfer terms are decreasing, many people looking to clear their debt in 2020 will be looking for the best balance transfer card for them, but might not be clear on which one would suit them.
Ultimately, the best balance transfer credit cards are the ones with the longest term of 0% interest, as this gives you more time to clear the debt before you have to pay it all back. However, this does depend on how much you would like to spend alongside the amount of time you could comfortably pay it off. Use the following equation to help you pick the most appropriate balance transfer card for you:
Balance Transfer term = Total you plan to spend ÷ How much you can afford per month
Whilst this might not work out exactly, it will give you a rough estimate of how long you will need to pay off what you plan to spend and also stop you from overspending by keeping this figure clear in your mind. Remember to always look for a card that has a higher 0% interest period, just in case.
It’s also important to remember that you will only be told the total credit limit and 0% interest period once you have been accepted. Since this is subject to change, make sure you overestimate and always check your eligibility using moneymatcher first. This will highlight how likely you are to be accepted with the full credit limit.
Balance Transfer Q&A
- How long does a balance transfer take?
The transfer itself will usually be very quick, depending on the provider completing it on your behalf. However, if you’re doing multiple transfers or have a larger amount to transfer this can take a bit longer. You will also have to wait for the balance transfer card to be sent to you, which could take up to 5 working days in some instances.
- What is a balance transfer fee?
This is an additional fee you will have to pay in order to complete the balance transfer. It is usually in the region of 3% of the total amount but it is worth shopping around as some providers allow you to avoid paying a transfer fee completely.
- Does a balance transfer affect your credit score?
The transfer itself won’t affect your score, but applying for a new credit card will, so you might see a slight drop. However, as soon as you start reducing your debt, this should creep back up again.
- Are 0% balance transfers a good idea?
They are a good idea if you’re currently paying a lot of interest, as you can dramatically reduce the amount you pay per month and give you more time to pay off the total if you have struggled in the past. However, always check your credit score first – if you have a bad credit score you might be ineligible for certain cards and have to take steps to improve your score.
Start your comparison journey by checking out our balance transfer tables using the link below. Good luck!