Cut Your Interest with a Money Transfer Card
What is a Money Transfer Card?
If you’re paying a high interest rate on loans or overdrafts, a money transfer credit card can eliminate your interest payments. It works in a similar way to a balance transfer card: it allows you to transfer existing debts to the card and repay them at 0% interest for a set period of time. But the crucial difference between a money transfer credit card and balance transfer card is that the former allows you to transfer cash to your current account to pay off your overdraft or other debts.A balance transfer card, on the other hand, only allows you to transfer debts from one credit card to another. Find out more with our guide to balance transfer cards.
Three Ways a Money Transfer Credit Card can Save You Money
1. Cut your Interest Bill With a money transfer card you can stop paying interest on your loans and overdraft. For example, if you had a £5,000 overdraft at 18%, you’d pay £75 a month in interest, or £900 a year. But transferring cash from a money transfer card to your current account to clear the overdraft would mean you’d pay no interest at all. However, you would have to pay a money transfer fee – a typical fee is 4% which equates to £200 on a £5,000 transfer, leaving you £700 better off over the course of a year. Even if you won’t be able to clear the debt during the length of the interest-free offer, once it’s on the card you can then move it to a 0% balance transfer deal when the 0% money transfer deal ends. 2. Consolidate your Debts Streamline your debts and lower your monthly repayments by moving all your loans and overdrafts onto a money credit transfer card. For example, you might have a £1,000 overdraft and £2,000 personal loan. If you did a £3,000 money transfer you could repay your overdraft and transfer the rest of the money to repay the loan. Then you’d just need to make one payment each month to repay the credit card – and at 0% interest too. 3. Clear your Debts Quicker With a 0% interest deal 100% of your repayments will go towards paying off the capital rather than partly towards interest payments. As a result you’ll be repaying your debts more quickly.
When Should I use a Money Transfer Card?
You should use a 0% money transfer card if you have other debts you are paying interest on. These could include an overdraft, personal loan or payday loan. Even if you won't be able to clear the debt during the 0% period you will still be a lot better off, because when the deal runs out you can then switch the debt to a 0% balance transfer card. Just check that what you'll pay in balance and money transfer fees is less than the interest rate you are currently paying. For example, if you had a £2,000 overdraft at 16%, you’d pay £320.20 interest a year. Switching this to a money transfer card at 0% for a year and with a 4% fee would cost £80. If the minimum repayment due each month was 3% of the balance, and that’s all you repaid for 12 months, the balance would be £1,443.19 after a year. If you switched this to a balance transfer card charging a balance transfer fee of 3% it would cost £43.30. So, in total you’d have paid £123.30 in fees, £196.90 less than you’d have paid in interest if you’d kept the overdraft.
Who can Get a Money Transfer Card?
Anyone can apply for a 0% money transfer card but you may not be accepted. Being rejected is not only annoying, it can also damage your credit rating. But our credit comparison tool eliminates the risk of applying and being rejected. Enter a few details about yourself and our advanced credit matching technology will rank credit cards in order of the ones you’re most likely to be approved for down to those that might reject you. Whilst acceptance still isn’t guaranteed, by applying for cards that our credit comparison service recommends, users are twice as likely to be accepted than those not using the tool. Read our guide to credit reportsto find out more.
What to Watch Out For
- Fees: As with a balance transfer card, there will be a fee for transferring debts to a money transfer card. This is normally around 4% so transferring a £1,000 debt will cost £40. It’s important to take the fee into account when comparing money transfer deals and working out whether a money transfer is worthwhile. To calculate this, work out how much interest you’d pay a year on your existing debt, then what the money transfer fee will cost you. If the interest is more than the fee, switch.
- Length of the 0% period: 0% money transfer cards will offer interest-free debt repayments for a certain period of time. Make sure you know when your deal is going to run out and take action to avoid paying the standard interest rate - it can be anything from 15%APR to 30%APR. Either pay off your remaining debt before the 0% deal ends or move the debt to a new 0% balance transfer credit card.
- Minimum repayments: Like standard credit cards, money transfer cards will stipulate a minimum repayment each month. This will normally be a percentage of the balance and failure to pay at least the minimum each month could mean the 0% deal is terminated immediately. Set up a direct debit to make sure the payment is made.
- Deadlines: Once you’ve taken out a money transfer card you’ll have a certain amount of time to make the money transfer - typically 60 days - otherwise you won't get the 0% deal. Act quickly and move your debt as soon as you have the card.
- Don’t borrow more: If your aim is to be debt-free, don’t pay off your existing debts with a money transfer then start borrowing again. Be disciplined and concentrate on just repaying everything you owe.
The Golden Rules of a Money Transfer card
- Set up a direct debit to pay at least the minimum repayment each month.
- Transfer your debt before the deadline.
- Make a note of when the 0% period ends.
- Don’t run up more debt.