What is a balance transfer credit card?
A balance transfer credit card can help you save money by moving balances from one or more credit cards to another. They usually offer 0% interest for a fixed period, so payments made go directly towards your balance. This can help you consolidate debt and save money on interest payments.
How does a balance transfer credit card work?
If accepted for a balance transfer credit card, your provider will transfer the debt from your old card to your new one. You’ll then owe the balance on the new card. If there’s an introductory promotional period, you’ll pay little to no interest on that transferred balance.
Introductory offers usually last between 3 and 29 months. After this point, the interest rate will increase, so it makes sense to pay off as much as you can afford to while the rate is low.
In some cases, you may be able to transfer someone else’s credit card debt to a new card in your name. However, there are usually restrictions involved that can make it tricky. For example, most providers will only let you transfer someone else’s debt if they are a family member, your partner, or a close friend. Only you can request the transfer, and you’ll be legally responsible for repaying the transferred debt.
You can always look at switching to another balance transfer provider at the end of your interest-free period. You may get a better deal for longer if your credit score has improved, but there is no guarantee (and you may not be accepted).
Some providers will also issue a one-time balance transfer fee, which is usually between 2-4% of the debt being transferred. You should bear this in mind when considering a balance transfer. The fee you pay could affect the overall cost-effectiveness of the transfer.
Should I get a balance transfer credit card?
Balance transfer cards can be a helpful way to save money, especially if you’re struggling with high interest rates on your existing lines of credit.
Let’s say you owe £4,000 on a credit card with a 25% APR. Transferring the debt to a 0% balance transfer credit card could potentially save £267 in interest over a 6-month period.
Other ways you can benefit from a balance transfer credit card include:
- Reducing interest: Reduce the amount of interest you pay on your existing debt.
- Simplifying payments: Consolidate all your debts into one manageable payment.
- Faster debt repayment: Allocate more of your monthly payments towards paying off what you owe.
It’s worth noting that your old credit card account doesn’t automatically close once you’ve transferred the balance. You’ll need to decide what you want to do with your old account once the balance has moved over.
How to transfer your credit card balance
Once you’ve received your new card, you can complete the balance transfer in just a few steps:
- Gather the necessary information about the cards you’re moving the debt from. This will include the name of the bank, the account number and the amount you’d like to transfer. Remember, the maximum amount you can transfer depends on the credit limit you have available on your new card.
- Contact your new card provider(the one your debt is moving to) to tell them you’d like to transfer the balance(s) with the information you’ve gathered.
- Wait while your new provider moves the balance for you. This can sometimes take 1-2 working days but can be up to a week
- Focus on paying off as much as you can within the interest-free period (if there is one). This will help you save on interest and should allow you to clear your debts faster.
How should you manage your balance transfer credit card?
- Always pay on time to avoid negatively impacting your credit score. Missed payments may make it difficult for you to borrow in the future. It may also result in you incurring penalties and charges from your lender or losing your low-interest rate offer.
- Pay more than the minimum if you can.Set up a Direct Debit for this amount so you never forget to make a payment.
- Be wary of spending on your card,as this will mean you’re adding to your debt. To clear as much as you can during the introductory period, it’s best not to spend on it.
- Avoid withdrawing money,as this can incur fees and affect your credit score.
What to consider before applying for a balance transfer?
While your total payments should be lower than before, you still need to make sure that you have enough money in your account for your new payment each month.
If you’re trying to clear the debt in full, work out the exact cost of doing so within the timeframe of the offer (plus the interest and the fee you would be charged), and then divide by the number of months the offer is on for:
A balance transfer of £1000 with a 3% transfer fee (and 0% interest rate for 12 months) will cost £1030 to settle within a year, which could be done with 12 monthly payments of £85.83.
Setting up a Direct Debit for that amount would then clear the total debt, rather than paying the minimum amount each month, which could take years to clear.
Applying for a balance transfer credit card
Using a free eligibility checker lets you see how likely you are to be accepted for a card before you apply. Unlike when you apply for a credit card, an eligibility checker won’t affect your credit score. That means you can get an idea of your chances, without making lots of applications in a short space of time.
Remember, too many applications all at once can have a negative impact on your score and make it harder to be accepted for credit.
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Intelligent Lending Ltd (credit broker). Capital One is the exclusive lender.
Disclaimer: All information and links are correct at the time of publishing.
Personal Finance Writer
Fiona is a personal finance writer with over 7 years’ experience writing for a broad range of industries before joining Ocean in 2021. She uses her wealth of experience to turn the overwhelming aspects of finance into articles that are easy to understand.
