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What is a balance transfer?


A balance transfer is where you shift existing credit card debt to another card which charges a low rate of interest or even 0% interest, helping you to save money.

A balance transfer credit card is therefore a great tool for those who are currently paying a high rate of interest on existing credit card debt.

How balance transfers work

Let’s imagine you have built up various credit card debts on a number of cards at a typical rate of interest of 18%.

If you switch the outstanding balance to a 0% balance transfer card, you will pay zero interest until the deal expires, which could be as long as three years or even more. And if you clear the debt by the end of the 0% deal, you will pay no interest on the balance.  

In other words, it’s a bit like an interest-free loan.



Some cards offer a good deal on both balance transfers and purchases. But if you want the most competitive rates, you will normally have to take out two cards. 

Clean credit record

The top balance transfer deals are not available to everyone as the card issuer usually insists on a clean credit record.

You are also normally unable to switch a balance from one card to another in the same banking group. So, if you already have a debt on a NatWest card, you will not be able to transfer the balance to an RBS deal as both banks are part of the same institution.

Card tarts

Remember too that ‘card tarts’ can gain a bad reputation. If you apply for too many credit cards, or constantly switch from one card to another, it will show up on your credit record and could affect your score – and not in a good way. 

You can compare balance transfer credit cards from all the leading providers on MoneySuperMarket’s free independent comparison site. It makes it easy to find the best deal at the best rate. 

You usually have to switch any debts within a month or two after you open the card, so don’t waste any time if you take out a new card. 

Set up a direct debit

The easiest way to manage your debt is to set up a direct debit. For example, if you transfer a balance of £3,700 to a card that charges zero interest on balance transfers for 37 months, you could set up a direct debit for £100 a month and you would be debt-free by the end of the 0% offer.

If you can’t pay off the debt before the 0% deal expires, you could try to switch to another balance transfer offer at the end of the term. If that fails, you will start to rack up interest at the standard rate.  

Some people choose to clear the outstanding balance in a lump sum at the end of the 0% offer. That’s fine, as long as you remember to make the minimum payment on the card each month or you will incur penalty charges. And make a note of the date when the full amount is due.

Watch out for fees

Consumers can potentially save hundreds of pounds if they manage their debts with a balance transfer card, particularly if they move debts from a high-interest store card.

So what’s the catch? You often have to pay a fee to switch a debt to a balance transfer card. The typical fee is about 2.5% to 3%. 

If you transfer a debt of £1,200, you could therefore pay a fee of £36. You should factor the fee into any calculations, but don’t let it put you off completely as many people can still save money with a balance transfer credit card. 

Remember too that ‘card tarts’ can gain a bad reputation.

Some cards charge lower fees, but with a shorter 0% period. Alternatively, you could apply for a card that does not levy a fee but charges a low rate of interest for as long as it takes to clear the debt. 

Different rates for purchases

Try to avoid spending on a balance transfer card as you do not always pay the same rate for purchases as for the transfer itself.

For example, a balance transfer card might charge zero interest for 37 months on balance transfers but a standard rate of 16% on purchases. Or it might charge 0% on purchases, but only for six months. 

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