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What is a balance transfer?

Balance transfer credit cards explained

Balance transfer cards help you manage your money by moving debts to a lower interest rate. Our guide explains how balance transfer cards work and what to watch out for

By Tim Heming

Published: 09 November 2021

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What is a balance transfer credit card? 

 

 

balance transfer credit card is a special type of credit card designed to receive an outstanding balance transferred from one or more other credit cards. The balance transfer card will typically have a very low or zero per cent interest charge on the transferred debt for a set period of time, such as 12 months. This gives you time to pay off what you owe without the interest building up. 

Balance transfer cards can consolidate multiple debts so you only have one monthly repayment to make. In some cases, the most competitive deals may offer 0% interest on transferred balances for two years or more.  

While it can be an effective way to manage credit card repayments, there are some things to consider before you decide to get a balance transfer card. These include a one-off fee for transferring a balance. 

How do balance transfers work? 

Balance transfers work by shifting your debt from one credit card to another. The balance of your old card is paid off by your new card, effectively swapping who you have to repay. 

Balance transfer cards will usually offer a promotional period where you’ll be charged a low or even 0% interest rate on your card balance for a number of months.  

If you have debt on a credit card at a high interest rate, it could quickly become difficult to keep up the payments. By moving this balance to a zero interest credit card, you wouldn’t pay interest until the deal expires, which could be up to three years. 

Credit card providers often charge a one-off fee for the balance transfer, which is usually a percentage, such as 2.5% or 3% of the balance for example.  

At the end of the low or zero per cent interest period the interest rate will usually jump up to a much higher standard rate or APR. If you aren’t able to clear the card balance by the end of this offer term you’ll have to start paying interest again on the debt – or you could look to transfer to another balance transfer card, if you’re eligible.  

How it works: 

  1. You’ve got a £2,000 outstanding debt on a credit card, for example, with an interest rate of 18.9%. 

  2. You transfer the debt to a new balance transfer card offering 0% interest for 24 months, paying a one-off fee of £60 (3% of the transferred balance). 

  3. You’ll need to pay £85 a month to clear the £2,000 balance within the 24-month offer period. But the interest saving – compared to the original credit card would be more than £400 - even after the £60 card transfer fee had been paid.  

Checklist for transferring a balance 

There are a number of things to consider before you apply for a balance transfer credit card. These include: 

  1. Deciding how long you’ll need to pay off your credit card. You can work this out by dividing your balance by the amount you can afford to repay each month. For example, if you have a £2,000 debt and can afford £100 per month, it will take 20 months to clear (assuming your card offered 0% for 20 months or more) 

  2. Shop around for the best deal for you. Searching and comparing credit cards with MoneySuperMarket helps you find the best deal for you. Look for cards with a 0% balance transfer period that is long enough for you to repay your existing card debts in full. You can see any transfer fees and also your chances of being accepted for the card if you apply – all without affecting your credit score. 

  3. Check balance transfer fees. Most balance transfer cards, particularly those with the longest zero per cent interest periods, tend to charge a fee. This fee is charged as a percentage of the amount you transfer, typically between 1.5% and 3% of your card balance.    

What is a 0% interest balance transfer? 

A 0% interest balance transfer is when you move what you owe from one credit card to a dedicated balance transfer credit card without having to pay any interest for a fixed period.  

The best 0% balance transfer credit card deals can last up to 36 months, but there are a few things to watch out for. 

You are likely to have to pay a one-off transfer fee, which could be a percentage of the balance you wish to shift. You should also only use the card to pay off what you owe as quickly as possible. 

If you use it for any other reason you may find you incur high interest charges. Look to try and clear the debt fully before the interest-free period ends. Otherwise, you could again face high interest rate charges. 

When is the best time to do a balance transfer?

When you should do a balance transfer will depend on your situation. If you have a large credit card balance and you’re facing high interest rates and struggling to pay off, it usually makes sense to transfer as soon as possible. 

If you’ve bought a high-value item, like a new car or kitchen, you may want to switch your balance to a 0% interest rate to take advantage of an interest-free card deal.  

Just remember to factor in any potential transfer fees that come with transferring your balance. 

Will doing a balance transfer affect my credit score? 

While a balance transfer can work well to manage debt, it can also affect your credit score. Here are some of the issues to consider: 

  • Be wary of making lots of card applications: Making a lot of credit card applications in a short space of time can damage your credit score, so don’t apply for lots of balance transfer cards at once. Searching for a card with MoneySuperMarket only involves a ‘soft credit search’, which won’t affect your credit score. That way you can see cards you’re likely to get so you can apply with confidence 

  • Lenders prefer long-standing accounts: New credit (both a new card or a loan) can affect your credit score because credit lenders prefer long-standing accounts that show sensible credit use over many years. But don’t panic, this dip into your credit score should only be temporary. It may be worthwhile to keep some older accounts open for a while, even if they’re not being used, to boost your credit score 

  • Reducing debt where possible: Remember that 0% interest cards can help you reduce your credit balance quicker. If this means you have less chance of missing any repayments of slipping further into debt it will be much better for your credit score in the long term 

What is a balance transfer fee? 

balance transfer fee is a one-off charge that’s a percentage of the amount of debt that you transfer – the typical fee is around 3%, with a minimum charge of about £3. If you transferred a debt of £1,200, then 3% of this would mean you would pay a £36 fee. Some cards charge lower fees, but often have a shorter 0% interest period. 

Most credit card providers require you to transfer 90-95% of the credit limit on your card. This is because providers don’t want you to have debts with other cards or spread yourself too thin and become unable to pay off the card. 

How do balance transfer cards work?

As an alternative, you could apply for a card that doesn’t charge a fee but offers a shorter period at 0% interest or a low rate of interest. This could be preferable if you only have a small debt balance to transfer and pay off. 

To get the longest 0% interest period balance transfer deals, you’ll usually need to have a solid credit history and good to excellent credit score. 

Our 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 and APR.

What are the advantages of a balance transfer card? 

There are two main reasons you might want to get a balance transfer credit card. These are:

  1. To clear debt faster. If you have an outstanding balance on one or more credit cards then moving the debt to a low or 0% interest balance transfer card can mean big savings in interest repayments - so you can get rid of the debt quicker.  

  2. To consolidate debts. A balance transfer card allows you to bring balances from other credit cards together onto one card to make debts more manageable. You’ll only have one monthly repayment to make so it’s easier to keep track of your finances.

Can I use my old credit cards after a balance transfer?

Once you’ve transferred your card debt, you may wonder if it’s better to stop using your original card for any further spending – or even close the card account down.

But while it may be sensible to remove the temptation to spend again on the card, closing it straight away could actually harm your credit score. This is because it could increase your debt-to-credit ratio.  

If you want to carry on using your credit card some lenders allow a ‘same day balance transfer’ and will allow you to use your credit card on the same day you transfer the balance. 

Often, providers will allow this if they get your transfer request before 5pm. But make sure you check this, as it can vary depending on when your previous provider processes the payment.

Balance transfer credit cards aren't generally designed for everyday spending. That’s because purchases - or new transactions on the card – are treated differently to the transferred balance debt and incur a higher interest rate.

If you’ll want to continue spending, you could look for a combined balance transfer and purchase credit card, These cards typically offer an interest-free or low interest rate for balance transfers AND a zero or low interest rate on new spending. 

The 0% interest period could be different for balance transfers and purchases so check the small print. But it’s ideal for those who need to switch a debt balance but also need a card for new spending.

What do I need to consider before transferring a balance?

  • You’ll need a good credit history: If you want one of the top balance transfer deals then you need to have an excellent credit score. Check your credit score and see our tips on how to improve your credit score

  • Don’t look desperate: 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 negatively affect your score. Our card eligibility checker tool can check your chances of being accepted for deals before you apply. It won’t leave a footprint on your credit record but will show you the credit cards that are most suitable for you 

  • Try to avoid spending on a balance transfer card. You may find the 0% interest period you signed up for only applies to balance transfers, and the interest rate on purchases could be high. There are some cards that offer 0% on balances transfers and purchases, but the rates may last for different lengths of time, so check the small print.

  • Pay attention to the interest rate and fee. Paying a low or 0% interest rate for a fixed period is typically the main reason customers take out a balance transfer card, but there may also be a one-off fee for switching the balance. In some cases, a card with a slightly higher interest rate but no transfer fee could be a better option, if it means you end up paying less overall. Take note of the low interest or interest-free period. Is it long enough to enable you to pay off your balance in full? Check what the standard interest rate will be once the interest-free period ends - and either make sure the card balance is cleared or take steps to switch to another balance transfer card

  • Use different card companies: You are usually unable to switch a card balance from one credit card to another with the same banking group. For example, if you already have debt on a NatWest card, you wouldn’t usually be able to transfer the balance to an RBS balance transfer deal, as both banks are part of the same company

  • Play by the rules: Once you’ve been accepted and you’ve received your card, you will usually have to switch any card debts within 60 days. Check the terms and conditions as failure to stick to the rules could mean you lose the 0% interest-free offer period on your card 

Compare balance transfer credit cards with MoneySuperMarket  

Comparing balance transfer credit cards with us is quick and simple. Just give us a few details about you and your finances and we’ll search across the market to find the best deals to suit your needs. We’ll also show you your chances of being accepted for different cards so you can make a confident decision before applying. Searching in this way doesn’t affect your credit score in any way.

 

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