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Balance Transfer Credit Cards explained

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Balance Transfer Credit Cards can be extremely useful in certain situations. But to get the most out of them, you must understand what they are, how they work and why they might be a good choice for you. Sit back and let the Money Guru enlighten your financial path.

What is a balance transfer credit card?

A balance transfer credit card is where a part or the whole of the outstanding debt or debit balance you owe to another lender is transferred from one credit or store card to another.

Transferring one debt (or part of it) is usually done to save money on interest repayments or to consolidate several outstanding balances on to one card. This makes it easier to keep track of the balance and the required monthly repayments.

What are the benefits of balance transfer credit cards?

Balance transfer credit cards are an excellent way to help you manage your finances without paying lots of interest. Many people use balance transfer credit cards as a way to reduce high interest payments on existing balances or to help them consolidate multiple balances into one single, manageable monthly payment.

Using balance transfer credit cards makes managing your repayments far easier, as by consolidating several debts you only have to make one monthly payment instead of remembering the repayment dates of several outstanding balances.

What do I need to know about balance transfer credit cards?

Although balance transfer credit cards may seem like a simple solution for reducing interest repayments or consolidating several outstanding balances into one manageable repayment, there are a few things that you should be aware of before making an application.

1. Clear debts before 0% period ends
Most balance transfer credit cards come with 0% interest period, so its essential that the full balance is cleared before the interest free period ends to safeguard against high interest rates afterwards.

2. Honour monthly repayments
Missing a repayment on one of these cards can damage your credit rating and take years to rectify, so its essential that you make the repayments on time, every time until the balance is cleared.

3. Never spend or withdraw cash
You will only avoid interest if you pay off the full debt of the balance transfer credit card, including transfers and purchases.

However, the lender will put the repayments towards the most expensive debt first, so adding to this amount by spending or withdrawing cash on these cards makes you more likely to go over the interest free period and increase the debt amount.

4. Protect your credit score
Each application you make for a balance transfer credit card will mark your credit file, so it’s a good idea to try an eligibility calculator before going ahead with a formal application.

Those with a better credit score are more likely to be accepted for a 0% interest balance transfer credit card, so it’s best to check beforehand.

5. Read the deal small print
Some lenders vary the length of balance transfer deals and give those with a lesser credit history a shorter period in which to enjoy the 0% interest rate and clear their balances.

Make sure that you are aware of how long you’ll be given to clear the debt or you run the risk of high interest rates once this period has come to an end.

6. Cut interest with the ‘credit shuffle’
You may be able to cut interest without taking out a new card by ‘shuffling’ balances between existing cards that have lower interest rates. Although complex, it is possible to save money by transferring balances to a card (or several cards) that have better rates.

Start by contacting your existing lenders to ask what deals are available on your current cards and work out which debts are costing you the most in interest before asking if it would be possible to transfer balances. Then compare with our eligibility tool to see where your best deal lies.

Check your eligibility for a credit card

How balance transfer credit cards work

Once you’ve found and been accepted for a balance transfer credit card, it’s usually a very simple process to transfer the balance from one lender to another.

Most lenders will arrange for this to be done for you, but you can do it yourself either over the phone, on the lender’s website or via an app.

Once this is done, you won’t have to take any further action yourself apart from servicing the debt on the new card.

However, you’ll still have your old cards as they do not automatically cancel themselves once the balance has been transferred to another lender.

Here are a few options when it comes to deciding what to do with your old cards:

  1. Keep the accounts open whilst your new account matures. This can help maintain your credit score as closing older, well-managed accounts can temporarily harm your score.
  2. Close the account. If you’re concerned that you might be tempted to begin spending on the old card again and therefore attract high interest rates, then close the account immediately. This may damage your credit score, but the harm will only be temporary as the new account matures.
  3. Cut up the card. If you cut up the old card to free you from temptation, it’s still a good idea to keep an eye on the account from time to time to prevent fraud.

How to do a balance transfer: A step by step guide

Here’s a step-by-step guide on how to do a balance transfer.

  1. Find the best balance transfer credit card(s) for your individual circumstances
  2. Use our eligibility calculator to see what the likelihood is of being accepted to protect your credit score
  3. Once accepted, make the necessary arrangement with the lender who you will be transferring the balance to. Often, they’ll do this on your behalf.
  4. Service the balance and make the repayments on time
  5. Decide what to do with your old cards and accounts

Check your eligibility for a credit card

Does a balance transfer affect my credit score?

Your credit score is a numerical representation of the analysis of an individual’s past and present credit files. The tool is used by lenders to determine a person’s creditworthiness and can affect the rates you receive on loans, mortgages and balance transfer credit cards.

Dependant on several factors, a balance transfer can either harm or improve your credit score. Applying for several balance transfers with low introductory rates at the same time can have a negative impact on your credit score. Conversely, if you apply for one card and get accepted, this can actually improve your credit score.

Comparing balance transfer credit cards

Most balance transfer credit cards attract a fee, which is normally a percentage of the total balance to be transferred and can typically be 2-3%, although some cards offer an introductory 0% balance transfer fee.

The fee you receive will be subject to a number of factors, the most important of which is your credit score and lending history.

In order to ensure that you’re getting the best deal, do some research beforehand on the best balance transfer credit card deals.

See all balance transfer cards