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What is a balance transfer?

Credit card balance transfers explained

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

By Lucy Hancock

Published: 05 February 2021

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A balance transfer means moving your existing debt from one credit card provider to another. People often use balance transfers to reduce interest payments on current credit card debts, or to help combine multiple debts into one manageable monthly sum.

It can be an effective way to manage credit card repayments, but there’s a lot that you need to consider about balance transfer credit cards before you decide to open an account.

How do balance transfers work?

Balance transfers work by you shifting your debt from one credit card to another. A balance transfer credit card is the tool that you use to do this; the balance of your old card is paid off by your new card, effectively swapping who you have to repay.

You may be wondering how banks and other providers make money from balance transfer cards. Firstly, if you don’t clear your debt before the end of the 0% period then you will need to start paying interest. Secondly, you’ll often have to pay a fee for doing a balance transfer.

If you have debt on a credit card at a typical interest rate of 18%, it could quickly become difficult to keep up the payments. If you were to move this balance to a 0% credit card, you wouldn’t pay interest until the deal expires, which could be up to three years.

In other words, if you pay off the card before the 0% deal expires, a balance transfer is a bit like an interest-free loan. 

How do balance transfer cards work?

Is a balance transfer a good idea?

A balance transfer can be a good idea if you’re wanting to avoid paying interest on your debt. Transferring your debt to a card with a lower interest rate means you:

  • Can pay less interest (but usually pay a fee) and/or
  • Keep control of your finances by combining multiple monthly payments into one place

When should I do a balance transfer?

When you should do a balance transfer will depend on your situation. If you have a large balance and you’re paying interest that you’re 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, so you’re interest free for a period of time.

If you’re finding your card balance can’t be repaid in full, you may find switching your debt to a 0% interest rate will almost always save you money.

But do bear in mind any potential transfer fees that come with transferring your balance.

Do balance transfers affect your credit score?

While a balance transfer can work well to manage debt, it can also affect your credit score:

  • Lots of applications: Making lots of credit applications in a short space of time (hard applications rather than soft) can damage your credit score. Don’t worry, a ‘soft search’ won’t affect your credit score
  • 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

Remember that 0% interest cards can help you reduce your credit balance quicker, which can be better for your credit score long term.

Watch out for fees

A balance transfer fee charges you a percentage of the amount of the debt that you transfer – the typical fee is around 3%, with a minimum 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% period.

Most credit card providers insist that you 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.

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.

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. But of course, if you want one of the top balance transfer deals, you’ll need to have a clean credit record and a good 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.

Checklist for transferring a balance

  1. Decide how long you need to pay off your credit card. You can work this out by dividing your balance by the amount you can afford repay each month. For example, if you have a £2,000 debt and can afford £100 per month, it would take 20 months to repay (assuming your card offered 0% for 20 months or over.)
  2. Use our credit card eligibility checker to find the best deal for you. Look for cards with a 0% balance transfer period that is long enough for you to repay the balance in full
  3. Check if the balance transfer card comes with a large fee. This will be charged as a percentage of the amount you transfer (though some cards have no fee.)
  4. Choose the card with the cheapest fee that offers a 0% transfer fee long enough to pay back the whole balance - and do not use the card for purchasing anything.

Can I use my credit cards after a balance transfer?

Balance transfer credit cards aren't generally intended for everyday spending. Once you’ve transferred your debt, you may consider whether to stop using it for any further spending. If you stop using your card you could consider keeping your card open. Closing your card straight away may impact your credit score by increasing your debt-to-credit ratio.

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.

You’ll need to keep up your repayments on your old card until your balance has transferred, to avoid unnecessary charges or late fees to your account.

Things to watch out for

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. There are some cards that offer 0% on balances transfers and purchases - but the rates may last for different lengths of time.

Use different card companies: It’s 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 can’t transfer the balance to an RBS deal, as both banks are part of the same company.

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. 

Make sure you 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. 

One way to prevent too many searches being recorded on your credit record is to use a tool to check your potential eligibility before actually applying. Our Eligibility Checker won’t leave a footprint on your credit record but will show you the credit cards that are most suitable for you.

It can also provide ‘pre-approval’ on certain balance transfer cards. This means you are highly likely to be accepted for the card you applied for, providing you pass additional identity and fraud checks.

Play by the rules: Once you’ve been accepted and you’ve 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.

Why use MoneySuperMarket?

Comparing balance transfer credit cards with MoneySuperMarket is simple. We're free and independent, and can offer you exclusive deals you can't get anywhere else.

By giving us a few details about you and your finances, we’ll put together a soft search of the market so you can see results without harming your credit score in the process. We’ll also show you your chances of being accepted, so you aren’t left disappointed. If you see ‘preapproved’ you’ll known you’ll definitely be accepted and you’ll definitely get the deal you see. This means that the interest rate, interest-free period and fees (if there are any) are all confirmed. The only thing we can’t guarantee is the credit limit you’ll get.

That way, you know where you stand and what’s going to happen, so you can apply with confidence. All you’ll be left with is peace of mind and confidence that the deal you’ve chosen is the right one for you.