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A balance transfer card simply lets you move an existing credit card debt to another credit card charging a lower interest rate or, in many cases, 0% interest for a set amount of time.
- You can benefit from a balance transfer card if you have debts on one or more credit cards and are paying interest
- The best balance transfer cards charge 0% interest but most will charge a transfer fee of 2 to 3%.
- It’s usually best to use a different credit card for purchases, although some cards offer 0% interest on both balance transfers and purchases.
What is a balance transfer card?
A balance transfer card allows you to move a debt from one credit card to another credit card.
When we talk about balance transfer cards, we normally mean 0% balance transfer cards.
You could benefit from a balance transfer card if you:
- have existing credit card debt
- are paying interest on your credit card debt
0% balance transfer cards charge zero interest for a set period of time — normally anything from three months to two years or more. This time period is often referred to as a “promotional period” or “introductory offer”.
Once the introductory period ends, the balance will start incurring interest. It’s best to aim to repay your debt in full by the end of the 0% introductory period - so you can avoid paying any interest at all.
If you switch your debts to a card charging 0% interest, 100% of your repayments will go towards repaying your debt, not towards paying interest.
This means you can pay off your debts quicker and cheaper.
How does a balance transfer card work?
You can transfer debts from one or more of your existing credit and store cards to a 0% balance transfer card.
So, as well as enabling you to save money, balance transfer cards can simplify things too. Instead of having to make multiple credit card repayments each month, you will just need to make one payment each month to the new card.
There are also credit cards called money transfer cards. These also offer 0% interest for a set number of months. This type of card lets you transfer cash to your current account to pay off overdrafts, loans and other debts. Then you repay the debt at 0% interest.
A balance transfer credit card, on the other hand, only lets you transfer debts from one credit card to another.
How do I transfer the balance?
When you apply for a balance transfer card, the application form will ask something along the lines of: “do you want to transfer debts from other cards?”
There will be a space to put in the details of the other cards.
If you're successful getting the new card, it will pay the other one off and the debt will appear on the statement of your new card.
If you don't do it with the initial application, most cards allow you to make transfers within 60 or 90 days of getting the card.
Just so you know, you normally can’t transfer balances from cards within the same banking group or credit card provider. For example, you wouldn’t be able to switch from one MBNA card to another MBNA card.
Can I transfer multiple balances?
Yes, you can. Credit card providers let you transfer balances from more than one card to your new balance transfer card.
Just make sure that the total of the balance transfers doesn’t exceed the credit limit on your new card.
Can I use the card for purchases?
Yes, you can use a balance transfer card for purchases — but spending may incur interest so check if this is the case.
If you need to spend, as well as transfer existing debts, look for a credit card offering 0% on both balance transfers and purchases. They are usually referred to as “all-round” cards. These 0% deals may be for the same length of time, or different amounts of time.
Alternatively, consider taking out a separate 0% card for spending.
What happens when the 0% period ends?
You should always aim to repay your total balance within the 0% interest time period.
However, the credit card company makes money from you failing to do this. At the end of the 0% period, it will hike up the interest rate — so watch out.
To avoid paying this interest, you can switch your balance to a new 0% balance transfer card. However, your ability to do this will depend on whether you are eligible for further balance transfer cards at that time.
Are there any costs?
Yes. Most 0% balance transfer cards charge a balance transfer (BT) fee.
The balance transfer fee is quoted as a percentage of the debt you transfer, with a minimum cash amount. For example, 3% with a minimum of £5. If you transferred £1,000 of debt, a 3% BT fee would mean you pay £30.
You should factor the balance transfer fee into your calculations when working out how much money a 0% balance transfer card will save you.
A few balance transfer cards don’t charge a balance transfer fee. These cards tend to offer shorter 0% periods.
What to watch out for
When the 0% interest period ends
The golden rule with 0% balance transfer credit cards is to repay your debt in the interest-free period. For example, if you have £1,000 of debt and can afford to pay £100 a month, you need a card that’s 0% on balance transfers for at least 10 months.
Repay your debt
Your aim should always be to repay the amount you transferred before the end of the 0% interest period. Doing this will mean you avoid paying interest.
The credit limit
You should check what the credit limit is on a balance transfer card. Most balance transfer cards will have a limit on how much debt you can transfer onto the card. This is normally 90% of the available credit limit. So if the credit limit is £1,000, you will only be able to transfer £900.
Look for a low balance transfer fee
Once you’ve decided how long you need 0% interest for, look for a card with the lowest balance transfer fee. Even better, look for a card with no balance transfer fee at all.
Pay at least the monthly minimum
Be aware that you need to repay at least the minimum payment each month, even during the 0% period. If you fail to pay the minimum, the card provider may cancel your 0% deal and you could be charged a late payment fee. Missing repayments may also impact your credit score.
Watch out for the go-to rate
Balance transfer deals are designed to make credit card companies money if you fail to pay your debt before the 0% period ends. The interest rate can jump massively at the end of an introductory period, often to way above the typical credit card APR of 18 or 19%.
Don’t spend on a balance transfer card
Try and avoid spending on a balance transfer card. Some, but not all, cards will charge you interest on purchases. If you need to spend, you can also take out a 0% purchase card.
Don’t withdraw cash
The same goes for cash withdrawals – these will incur both an ATM fee and interest from the moment you take the cash out. So avoid using the ATM.
Understand headline offers
If you don’t have a perfect credit record, you may be given a shorter 0% interest period than advertised. For example, you might apply for a 24-month 0% balance transfer deal, but only be offered 18 months at 0%.
Double check the credit card provider
You normally can’t switch a balance from one card to another in the same banking group. For example, if you already have debt on a Halifax card, you won’t be able to transfer the balance to a Lloyds card, as both banks are part of the same company, the Lloyds Banking Group.
Cancel your old card
Switching your balance won’t automatically close down your old credit card – you’ll need to arrange for the account to be closed yourself. Keeping it open may tempt you to start spending again.
Pros and cons
- Transferring a balance from a high interest credit card to a 0% balance transfer card can be a great way to save money and get out of debt faster
- You can consolidate debts from different credit cards and repay them with one monthly payment and zero interest.
- You can often get a relatively short balance transfer deal even if you have [bad credit](https://www.totallymoney.com/credit-cards/credit-cards-bad-credit/). Repaying your debt and using less of your available credit could boost your credit score.
- The balance transfer fee means this type of card might not always be the most cost effective solution.
- Go-to rates at the end of 0% deals can be high. If you’re not careful, you’ll end up paying interest on your debt again AND at a higher rate than originally.
- Continually switching your balance from credit card to credit card may eventually harm your credit score.
- If you miss a repayment, the 0% deal could be cancelled and you could have to pay the card’s standard rate.
Where can I find the best balance transfer offers?
Do your homework before picking a balance transfer deal.
With TotallyMoney, you can compare credit cards from across the UK market and check your eligibility before making an application. This will help protect your credit score as you can then only apply for cards you’re likely to be accepted for. Too many rejections can have a negative impact on your credit score.
You should also check your credit report before making an application. If you see any incorrect information, you can raise a dispute by selecting the ‘Raise a dispute’ option against the appropriate section of your credit report.
Making sure your credit report is correct will give lenders accurate information and help them make more informed decisions about lending you money.
When you’ve found a deal you like the look of, read about the 0% deal, the balance transfer fee, interest rates, features and terms carefully. Ideally you’ll be able to repay your entire debt within the 0% period.