How balance transfers work
Imagine you have built up credit card debt 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 three years or even longer.
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.
Watch out for fees
Applicants 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?
The provider of a balance transfer card has two ways to make money. One is when cardholders do not clear their balance before the end of the 0% offer period, and so start paying interest.
But the second is much more reliable – a fee levied as a percentage of the amount transferred to the balance transfer card. The typical fee is about 3%, with a minimum of, say, £3.
So, if you transfer a debt of £1200, a 3% charge would mean you paying a fee of £36.
You should factor any fee into your calculations, but don’t let it put you off as many people can still save money with a balance transfer credit card by not paying interest.
If you want one of the top balance transfer deals, you’ll need to have a clean credit record.
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.
Our helpful credit card calculator can help you work out how long it will take to pay off an existing balance based on your current monthly repayments.
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 24 months on balance transfers but a standard rate of 18% on purchases. Or it might charge 0% on purchases, but only for six months.
You’ll need a clean credit history
If you want one of the top balance transfer deals then you’ll need to have an excellent credit score.
It’s also worth noting that you are usually unable to switch balance from one card to another in the same banking group.
For example, if you already have debt on a NatWest card, then you will not be able to transfer the balance to an RBS deal, as both banks are part of the same company.
Don’t look desperate
If you apply for too many credit cards or constantly switch from one card to another then it will show up on your credit record and could negatively affect your score.
How to find the best balance transfer credit card
You can see which balance transfer credit cards you might be eligible for using our Smart Search tool, which doesn’t leave a footprint on your credit record.
Smart Search can also provide ‘pre-approval’ on certain balance transfer cards. This means you’ll be highly likely to be accepted for the card you have applied for, providing you pass additional identity and fraud checks.
Play by the rules
Once you’ve been accepted and received your card you will usually have to switch any debts within 60 days. Check the terms and conditions as failure to play by the rules could mean that you don’t get the offer that you initially signed up for.
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