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What is a balance transfer credit card?

What is a balance transfer credit card image

A balance transfer credit card is a financial product that allows you to transfer debt from one or more credit or store cards to another in order to save money on interest. Balance transfer credit cards are also a good way of consolidating debt and making it easier to manage your finances.

Should I get a balance transfer credit card?

If you are looking to reduce the amount of interest you pay on current credit or store card debt, a balance transfer credit card with a low or 0% interest period long enough to clear the balance in full is a good way of saving money.

Balance transfer credit cards are also a very good way of taking back control of your finances if you have several credit or store cards and are struggling to make the repayments on time. Having a single repayment to make each month will help ensure that you don’t get hit with late fees or damage your credit rating.

Most balance transfer credit cards come with an initial fee, and these vary, so always double check them. They’ll be a percentage of the total outstanding balance. Before choosing a balance transfer card, you’ll need to make a note of the limit you’ll need in order to cover the amount you are transferring from other credit or store cards.

View and compare balance transfer cards

How do balance transfers work?

Balance transfers work by transferring an outstanding debt from one credit or store card to another, usually to save money on interest. The debt from the original card (or cards if transferring several debts) is now cleared, but you now owe the balance to the new lender owning the card you’ve transferred the debt to instead.

The process of transferring one or several credit or store card debts to a balance transfer credit card is relatively simple:

  1. Choose a card that you wish to transfer the balance to.
  2. Use an eligibility checker to see how likely you are to be accepted for the card.
  3. Apply for the chosen card.
  4. Once accepted, give the new lender the details of the balances you wish to transfer and check that the credit limit will cover the total amount of the debt.
  5. Make repayments to the new lender on time.
  6. Decide what to do with your old cards (ideally, keep them open with a zero balance).

Before you go ahead and apply for a balance transfer credit card, there are a number of things to look out for and be aware of:

Fees

Many balance transfer credit cards come with a transfer fee, so just be aware of this before accepting a new card.

Interest rates after the interest free period

Interest rates can climb quickly after the interest free period comes to an end, so aim to clear the balance beforehand or make sure you can afford the increase should you not be able to settle the debt.

Purchases and cash withdrawals

Balance transfer credit cards attract fees and interest if they are used to withdraw cash or make purchases, even within the interest free period.

View and compare balance transfer cards

When is a balance transfer card beneficial?

A balance transfer credit card is beneficial for those who wish to reduce the amount of interest paid on existing credit or store cards, or for anyone who wants to consolidate their debts to gain better control of their finances. You’ll have just one monthly repayment to make, to a single lender instead of several different repayments across different dates.

A balance transfer credit card is particularly helpful in the following situations:

You’re struggling to make repayments due to high interest rates

Interest rates on credit and store cards can soon mount up, especially if you are only making the minimum payment each month. A 0% balance transfer card means that you’ll only repay the debt and not the interest during the interest free period, making the balance easier to clear.

You want greater control of your finances

For those of us who have several credit cards with various interest rates, it’s difficult to keep track of what we owe and how much the debt is costing us. A balance transfer card allows you to consolidate several credit and store card loans in one place, making the debt easier to manage.

You’re Forgetting to make repayments on time

Our busy lives often mean that we can occasionally forget to service debts, especially if we have several cards. Combining all of your store and credit card debt on a balance transfer credit card means that you’ll only have to remember to make one payment per month on or before the due date.
 

What are 0% balance transfer cards?

There are two types of balance transfer card; one that offers an introductory 0% interest rate and a standard balance transfer card that will charge a percentage of the outstanding balance as interest. Where possible, opt for a balance transfer card with an interest free period so you can clear the debt without spending extra cash on interest fees.

A 0% interest balance transfer card is the ideal solution to clearing debt without paying interest on the amount borrowed, but the deal you get will depend on your individual circumstances and credit score.

It’s also worth remembering that the interest free periods vary from card to card, so make sure that you select the deal that gives you long enough to clear your balance without having to pay any interest.

Some standard balance transfer cards will charge interest, so shop around to find the best deal for you.

 

What are the penalties and fees on balance transfer cards

Although some balance transfer cards come with an introductory interest free period, many of them include fees and penalties such as transfer fees and late payment penalties that you need to be aware of before applying for them.

Transfer fees

Some balance transfer cards charge a transfer fee which will be a percentage of the total balance, so calculate how much this will be before applying.

Annual fees

Occasionally, a balance transfer card will have an annual fee for using the account. Shop around to see if you can find a balance transfer card that doesn’t charge an annual fee.

Late payment fees (£12)

Failure to make a repayment on a balance transfer card will result in a late payment penalty and may harm your credit score, so make sure you make your payment on time.

Interest rates

Check how much the standard interest rate is after the introductory 0% interest period as this can significantly increase the repayments and length of time you’ll need to clear your balance.

Check your eligibility for a credit card


Comparing balance transfer cards

Deciding on which balance transfer card to apply for can be a little confusing, but there are several card comparison sites available online to help you make a decision. Consulting these before applying can help you make the right choice. View and compare balance transfer credit cards here.

Your personal circumstances will have a lot to do with the balance transfer card you decide to go for, so consider the following before making an application:

How long will I need to clear the balance?
If your balance is quite large, then you’ll probably want more time to clear the debt. Find the balance transfer credit card that offers the longest interest free period so you have longer to pay the balance off without paying any interest.

Am I willing to pay fees?

Most balance transfer cards have an initial transfer fee and some also carry an annual fee. Make sure you are aware of any fees before applying for the card.

How much do I need to transfer?

You won’t know how much the lender will offer you in terms of a credit limit until you are approved for the card, so look at cards that promote credit limits higher than the amount you actually need.

How likely am I to be accepted?

Lenders will carry out a credit check before offering you a balance transfer card, but this can temporarily harm your credit rating. Use an eligibility calculator before you apply to see how likely you are to be accepted for the card before making an application.

Can I afford the interest once the 0% interest period ends?

Once the interest free period comes to an end, any outstanding balance amount will attract interest. Find out what the percentage will be after this period to check that you can still afford the repayments should you be unable to clear the entire balance.

Check your eligibility for a credit card