If you’ve ever owed money on a credit card, you know how expensive it can be. With interest rates around 20%, it’s not hard for your debt to spiral out of control. A balance transfer is a great way to save money on interest and pay off your debt faster.
What is a balance transfer?
A balance transfer is a when you take the balance of one debt and move it into another account. The main reason for doing this is that it can help you pay less interest. And it means you can bring all your balances into one place, making it easier to manage.
It’s worth doing if you transfer the balance to another account where you pay less interest.
What is a balance transfer on a credit card?
A Balance Transfer on a credit card is when you transfer what you owe on one credit card to another one. It’s common practise these days as by doing so you can avoid paying as much interest. It is possible to reduce the interest you pay to 0% for a limited period. If you’re struggling to make payments on multiple cards with high interest rates this can be a big help.
How does a balance transfer work?
1. You take out a new credit card with a lower interest rate than the one you have
If you can, take out a credit card that lets you transfer your balance with a promotional rate of 0% APR. Otherwise look for card that charges a lower interest rate than what you’re already paying.
2. Transfer your balance from your old credit card to your new one
You’ll often find that when you apply for your new card, it’ll ask if you have any balances you want to transfer. By entering the details of your existing credit card debt, it will do the transfer for you. Otherwise, you can do the balance transfer manually yourself with the new credit card.
There will be a fee charged for transferring the balance from one card to another. This tends to be a percentage of the balance you’re transferring.
3. Start making payments to your new credit card and stop using your old one
You might find it tempting to continue using your old credit card once you’ve cleared it. If this is the case, you may be better off closing the old account.
But if you keep your old card account open, it could help your credit score. This is because by not using it, you’re keeping your borrowing well below your credit limit. This helps to improve your credit score. You can avoid the temptation to spend on it by putting the old card away somewhere safe.
4. Keep a check on when the low interest rate on the new credit card stops
It is important that you are aware of when the promotional rate on the new card ends. At this point, a high rate of interest will kick in.
To avoid paying this higher rate, you could look to move your balance onto another card with lower interest. If you haven’t used your old card, they may let you transfer the balance back. But as before, check the rate and the transfer fee they offer to make sure it’s worth doing.
What are the pros and cons of a balance transfer?
| Pros of doing a balance transfer | Cons of doing a balance transfer |
| You can consolidate all your debts by transferring them all onto one credit card. | You’ll have to pay a balance transfer fee every time you do a transfer. This could be added to your debt. |
| You can save money by paying less interest. | If you miss your repayments, you could lose the promotional interest rate. |
| You can pay off your debt faster as you’re paying less interest. | Once the introductory rate ends, if you haven’t cleared your balance, you’ll be paying higher interest again. |
| It can help your credit score when you make your repayments on time. And if you keep your old credit card at £0, it shows you can manage your money as you’re not using all your credit. | You could end up getting into more debt by spending on your old card that you cleared. |
Why is a balance transfer useful for me?
A balance transfer is useful as it means you can move all your debt onto one credit card. This makes it easier to manage as you don’t have to make multiple payments to different accounts. It can also save you money if you transfer your balance to a card with a lower interest rate. These elements combined can help you pay off your debt faster.
How much money can I save with a balance transfer?
The amount of money you’ll save when you do a balance transfer will depend on two things:
- The balance transfer fee
- The difference in the interest rates between the old credit card and the new one
Here’s a simple example of this. Let’s say you owe £4,000 on your existing credit card which charges you 20% annual interest. The total interest you’d pay over 12 months would be £800. The new credit card charges 0% interest for the first 12 months, but it charges a transfer fee of 3%. The transfer fee on £4,000 would be £120.
In our example, by transferring the £4,000 from one card to another would save you £780 in interest over the 12 months.
What should I consider before applying for a balance transfer?
Before you do a balance, transfer there are things you should think about first.
1. The length of the promotional period on the balance transfer
The promotional interest rate on your new credit card won’t stay at that rate forever. That’s why it’s worth checking the following points.
- Check how long the promotional period’s going to last. Some cards offer the special rate for 12 months, others will offer it for up to 24 months. Shop around to find the best option for you.
- Find out what the charges are when the promotional period ends. Think about what you’re going to do at that point if you haven’t cleared your balance by then.
2. How much can you afford to pay off during the promotional period?
While you have a 0% interest rate, every payment you make is reducing your debt instead of paying the interest. Be realistic about what you can afford to pay off during the promotional period. But paying down your debt is always a good idea.
3. Check what the balance transfer will be
The balance transfer fee is usually a percentage of the balance you’re transferring. Check that it won’t end up costing you more overall compared to your existing debt.
4. What if the credit limit on your new card isn’t enough?
The credit limit you’re offered on the new card might not be enough to cover the balance on your old card. If this happens, you could still transfer as much as you can to the new card. Then, to pay off what’s left on your old card, you could:
- Take out another credit card with a promotional interest rate and transfer the remaining balance onto it.
- Find ways of making some extra cash to pay back the remaining balance.
How do I choose the right balance transfer for me?
If you want to do a balance transfer, choose the credit card company you’re most likely to be accepted with. There are a lot of credit card companies around and their terms will differ. You may not be eligible to apply with all of them, it depends on your credit score.
There are ways of finding out if you’re eligible to apply for a balance transfer. Once you know which ones you can apply to, compare their terms to get the best transfer deal.
What are the different types of balance transfer?
There are key differences between balance transfers on 0% credit cards and how long you get that rate for. They can be for a long time or a short time.
1. Long Balance Transfers
A long balance transfer means you get the 0% interest rate for a longer period. This is good if you need more time to pay off your debt. The downside to this is that these cards tend to have higher transfer fees.
2. Short Balance Transfers
A short balance transfer means you get the 0% interest for less time, but you pay a lower transfer fee. This is good for people who have the money to pay off their debts quickly. It’s usually better for people with lower balances to transfer.
How do I do a balance transfer?
There are 4 easy steps to doing a balance transfer:
- Check your balance on your existing card so you know exactly how much you want to transfer.
- Research which balances transfer cards you’re eligible to apply for and choose the best one for you.
- Make sure you understand the terms of the card you’re transferring your balance to.
- Apply for the credit card and once approved, transfer your balance.
How can I make the most out of a balance transfer?
If you’re going to do a balance transfer, you’ll want to make the most out of it. Here are some tips on how to do it.
- Make sure all your payments are made on time and make a note in your diary of when the special rate is going to end.
- Try to pay off what you owe before the 0% interest period ends
- If your card comes with a 0% rate on purchases, make sure you know how long that period is for. It might not be the same as your balance transfer 0% period. Remember to clear your purchase balance before the 0% rate ends.
What are the alternatives to balance transfers?
If a balance transfer doesn’t seem like the right fit for you, there are other options to consider. Here are a few.
1. Take out a loan
But this depends on your credit score. Short term loans could be considered as an option. Usually, these type of loans come with a higher interest rate so it is advisable that you should first check the pricing with the direct lender and then only move ahead with taking out these loans (subject to affordability).
A loan spreads the repayment costs over a few years. Knowing how much you need to pay each month to clear it can make repaying the loan more manageable. It helps to stop it feeling like it’s a never-ending debt, which it can do when you’re paying the minimum payment on your credit card.
2. Ask for a settlement
If you have some savings, you could ask the credit card company if they’ll accept a lower sum to clear the balance. If they agree, the lender will clear your balance with the lump sum you offer.
But this option should only be used as a last resort as it will show on your credit file. It’ll impact your ability to take out future loans as it’ll bring down your credit score.
3. Get Help
If you’re struggling to repay your credit card and can’t get a new card with a special rate, then get help. There are organisations who’ll offer you advice for free. Here are a few you could turn to.
- Moneyhelper
- Stepchange
- Citizens Advice Bureau
FAQs – Balance transfers
How long does it take for the balance to transfer?
A balance transfer can be done quickly, with some banks completing the transfer within 2 days. But it could also take a week or more. Check with your lender if the transfer hasn’t gone through after two weeks.
Don’t forget to keep making your repayments on your old card while you’re waiting for the transfer to complete.
Is a balance transfer available on my credit card?
If you have more than one credit card and you want to do a balance transfer between them, check with each card company. You’re unlikely to be able to transfer balances between cards with the same bank.
How much money can I transfer?
The minimum amount you can transfer is usually £100. The maximum amount you’ll be able to transfer will be no more than the credit limit. And it tends to be around 90% of the credit limit on the card you’re transferring to.
Does transferring a balance from my credit card affect my credit score?
Transferring a balance from one credit card to another one won’t affect your credit score. But if you apply for a new credit card this will affect your credit score. This is because the new card provider will do a hard credit check when you apply for your new card.
Disclaimer: The above content is provided for information only. Please check in detail with your respective bank before doing a balance Transfer. Also, the external links linked above are for reference only and we are not affiliated to any of the external parties linked here.
