What is a 0% Balance Transfer Card?
Getting a credit card is like any other form of borrowing. You may be offered the opportunity to borrow interest free for a certain length of time, or you might be given benefits and perks to help you make a decision on which card to choose, but for the most part, you’ll be expected to pay back any money you owe, through monthly repayments, on time and with interest.
A higher interest rate means it could take you longer to pay back as you’ll need to chip away at the interest too and if you have several cards, including store cards, each with their own debt and interest rate, then reducing the amount of interest you pay can help you clear debts more quickly. It will also help reduce the cost of borrowing overall.
This is where a balance transfer card can help. Consolidating credit card debt and choosing a low-interest rate can help you clear your debt more quickly. Paying no interest at all through a 0% balance transfer card means the money you owe stops growing and you can concentrate on clearing your debt.
Want to know more? Here’s how it works...
What is a balance transfer card?
A balance transfer card is a card that allows you to transfer your debts from one or more credit cards to another. This consolidates those debts so that you’re only paying one repayment each month. If you search for the card with the lowest interest rate, you can ensure that any interest you do pay is at a minimum. You may be asked to pay a percentage of your balance upfront as a transfer fee but could end up paying much less in the long run to clear your debt. A lot of providers offer a 0% balance transfer card for periods of a few months and up to three years, which could really take the pressure off you. This means that you won’t pay any interest on your debt until that deal expires.
How a balance transfer card works
You’ll need to pay at least your minimum payment every month to retain special rates, avoid charges, protect your credit rating and ensure you’re reducing your debt. With this in mind, the best way to take advantage of how a balance transfer card works is to calculate how long your special rate lasts for and divide the total sum you owe (including transfer fee) by the number of months you have to clear it. By treating your credit card debt like a personal loan with fixed payments, you will then have confidence that you’ll owe no money before any higher interest rate kicks in.
Be aware of time and credit limits
There are some rules you need to be aware of if you’d like to carry out a balance transfer. You’ll often be required to complete a transfer within a certain time period of opening the card in order to qualify for special rates and you won’t usually be able to transfer a balance from the same card provider onto a new card.
Your card provider will set your credit limit based on your credit profile and you won’t necessarily be granted a limit that will allow you to transfer your full balance from another card or multiple card balances. It’s also important to know that most card providers cap the percentage of your credit limit that you can take up with transfers, usually around 80-90%.
Even if you can’t transfer a total balance from another card, it may be cheaper to reduce the interest on the amount you can transfer. Though you’ll need to remember to make monthly payments to two cards instead of one. You could look to transfer any remaining balance from your old card in the future once you have freed up some space if you still qualify for a special or lower rate.
Whenever you carry out a transfer it’s important to balance the cost of the transfer combined with your new interest rate against the cost of interest payments saved. Though with transfer fees generally costing up to 3% and standard APRs hovering in the late teens, you could potentially save hundreds or more by switching, depending on what you owe.
Some cards actually offer a cashback fee for opening them, provided you transfer a balance in a specific time period. Depending what your balance is, this could mean you effectively receive part or all of your transfer fee back.
Is a balance transfer card right for me?
A balance transfer card may be right for you if you want to clear your debt with less interest to pay. You should never withdraw money from the ATM using this type of card or as a general rule, credit cards. Doing so usually incurs high rates of interest and isn’t viewed favourably by credit reference agencies.
If you’re not confident you’ll be able to clear your debt completely during the interest-free period, you may be better off looking for a low-interest balance transfer card that allows you to clear in a longer timeframe. This is because just one or two month’s interest at a higher rate could wipe out the savings made by your transfer.
Compare balance transfer card
Want to reduce the interest you’re paying with a balance transfer card? The best deals are, as you’d expect, reserved for those with the most impressive credit ratings. With this in mind, it’s always a good idea to check your credit record for any issues before making an application.
To avoid a negative mark on your credit record by firing out applications, use a soft search tool like our moneymatcher to highlight deals that may be available to you. A soft search does not leave a mark on your credit file. Not only will it conjure up matches that are tailored to your requirements but it also breaks down the important points you’ll need to compare and contrast, such as the total cost of borrowing, APR and transfer fees and other charges such as annual card fees. Fancy features like cashback or other reward schemes are also highlighted so you can seek out the card that’s right for you.
Remember headline rates
When you’re considering your options, be aware that not everyone gets the headline rate or 0% balance period advertised. Many transfer deals are offered on an ‘up to’ basis with the card provider deciding what you’re offered and you could also be asked to pay a higher transfer fee or be one of the people who is accepted for a card but asked to pay a slightly higher interest rate.
If you’re not able to snag one of the better deals at this time, you might find that you could still save money by moving balances around on existing cards you already have. Always check balance transfer deals that are open to you through current credit card lenders too.