What is a balance transfer credit card?

Are you paying steep rates of interest on one or more credit or store cards?

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Balance transfer credit cards are designed to help you pay off your credit card debts without having to worry about high interest charges.

Here’s what you need to know.

How do balance transfer cards work?

As the name suggests, a balance transfer card allows you to shift over existing credit card debt so that you can pay a lower rate of interest.

The amount you can transfer depends on the credit limit you are offered by the card provider.

Balance transfer cards usually offer a 0% introductory rate for several months, or a consistently low interest rate.

This means you can either pay back what you owe interest-free, or at a much lower rate than you were previously paying.

Balance transfer fees

Most credit card providers charge a fee to arrange a balance transfer, although a few don’t impose any charges.

Fees typically range from 1% up to 3%, so if you’re transferring a balance of £1,000, you’ll be charged from £10 up to £30.

As a general rule, the longer the 0% period, the higher the balance transfer fee will be.

Even if a card does charge a relatively high balance transfer fee, you can usually still save money, particularly if you’re currently paying a hefty rate of interest on your existing card or cards.

For example, imagine you owe £1,000 on a store card which charges you an annual percentage rate (APR) of 26%, and you make monthly payments of £20.

If you moved this balance on to a card offering 0% on balance transfers for 12 months, with a 3% balance transfer fee, and continued to pay £20 a month, you’d save £216 over the year, even once the fee is factored in.

Check when the introductory period ends

The length of the 0% introductory periods offered by balance transfer cards can vary hugely from provider to provider.

Some will only offer you a 0% rate for six months to a year, while others may offer rates that last for two or three years, or sometimes even longer.

You’ll only qualify for the best balance transfer deals if you have an excellent credit history, so you’re unlikely to be accepted if you have any County Court Judgments (CCJs) or if you’ve ever been made bankrupt.

Remember that at the end of any promotional period, the interest rate will shoot up to the provider’s standard APR, typically around 18%, although rates can be higher or lower than this.

When choosing a balance transfer card, you must therefore be certain you’ll be able to pay off what you owe during the introductory period.

If you can’t, you’ll suddenly be hit with high charges again once the promotional period finishes. The only way you’ll be able to reduce them is if you move your balance to another balance transfer card.

Be careful about doing this too often, as every credit card application you make will show up on your credit history. If you’re always switching cards, this could negatively affect your credit score.

If you don’t know when you’ll be able to clear your balance in full, it’s worth considering a balance transfer card with a consistently low rate, rather than one offering 0% for a limited period.

Although this means your debt won’t be interest-free, you’ll have peace of mind that you don’t have to pay off what you owe within a set time period.

Don’t miss payments

If you have a balance transfer credit card it’s really important you don’t miss any monthly payments.

If you do, then your card provider could withdraw any promotional rate you’re on, and you’ll have to pay standard APR charges.

It’s a good idea to set up a direct debit so that you have peace of mind your payments will always be made on time.

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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