What are balance transfer credit cards?
A balance transfer credit card allows you to transfer the balance from one credit card to another. This means you could pay off your credit card debt quicker, as you’ll only have one repayment to make. There may also be a fixed period of time in which you have no interest to pay.
How does a balance transfer credit card work?
A balance transfer means moving the debt from one card to another. This is often done when you are paying a high level of interest on your card and can save money by moving to a card with a lower interest rate (or no interest to pay at all).
This means you could pay off your debt without adding interest to your repayments.
It works like this:
Say you have £1,000 worth of outstanding debt, with an APR of 20%, and are struggling to pay it off. A balance transfer card could allow you to transfer that debt, often with an introductory interest rate for a set period of time. For example, 12-months at 0% interest.
By doing this, you’re not accruing any more debt through mounting interest, representing a saving of £200 during that 12-month period. You could then pay off your debt without worrying about the amount increasing.
What are the advantages of a balance transfer credit card?
There are many advantages to balance transfer credit cards that can actively help you with your repayments if managed responsibly.
Some of the advantages of balance transfer credit cards include:
- They can help you clear your debts faster: If you have outstanding debts on more than one credit card, moving these debts to a low or 0% interest balance transfer card could halt or dramatically slow down mounting interest. If you then meet or exceed your minimum monthly repayments, you could pay off existing debts quicker than if you left them in high interest accounts.
- They can help you consolidate your debts: Repaying multiple debts from a range of creditors can be tricky. It can also mean you could be more likely to miss repayments. Balance transfer cards can let you consolidate your debts in one place and manage them with a single repayment.
- They can help improve your credit score: With opportunities for lower interest rates and debt consolidation, balance transfer cards can help you manage your outstanding debts and repayments more easily. This can help you stay on top of your repayments and improve your credit score over time if managed responsibly.
What are the disadvantages of a balance transfer credit card?
Despite the potential advantages of using balance transfer cards, there are also some factors that should be carefully considered before applying.
Some of the potential disadvantages of balance transfer cards include:
- There may be penalties for debts not being cleared quickly enough: Many banks and lenders have an interest-free period on their balance transfer cards. When this period is over, rates can increase, sometimes to levels higher than you were paying before moving to a balance transfer credit card. So, it might be important to get on top of your debts early if you have one of these cards, and check with your creditor if you’re unsure.
- There can be a temptation to spend: Because many balance transfer cards offer low interest, it’s possible that some people may find it tempting to spend more, as they’re not paying as much interest on their balance transfer. However, over time, increased spending may result in high-interest charges after the low-interest introductory period ends.
- You may not get the rate that’s stated: It’s possible that, if you have a poor credit score, you could be denied an interest-free or low-interest balance transfer credit card. If you accept the card without checking the APR, you may be paying charges you don’t know about. It’s important to check all the details of your balance transfer card proposal before accepting credit.
What fees are associated with balance transfer credit cards?
There are two main fees to consider when moving credit from other providers onto a balance transfer card.
These are:
A transfer fee:
While some banks and creditors offer a no-fee period on balance transfers, others may charge the new card holder a one-time fee for transferring and consolidating their existing credit into one balance transfer credit card. This fee is often between 1% and 3% of the total balance being transferred, though some credit providers might charge more.
Interest rates:
While some balance transfer cards offer 0% interest, others offer reduced or variable interest rates depending on the discretion of the provider.
It's also important to check that the fees you may need to pay don’t amount to more than what you might save in interest with a new card.
Can you get a balance transfer card with bad credit?
Having a low credit score may give you fewer options when choosing a credit card. So, if you have a bad credit score, you might not get approved for a balance transfer credit card.
However, there are some card issuers that may be willing to provide credit cards to people with a low credit score and who want to build their credit rating.
When should you get a balance transfer credit card?
A balance transfer credit card could be the right solution if you currently have a credit card with a large balance and are being charged a high rate of interest.
You may have balances on a few cards which you want to move onto one card, known as consolidation. Whatever the reason, here are a few things to think about when deciding if a balance transfer card is right for you:
- Can you afford to pay off the debt on your current card over the next few months? If so, this might be more cost-effective than moving the balance to a new card.
- Will you qualify for a balance transfer card with 0% interest? Or a card without a fee to pay for the transfer?
- Is the credit limit on the new card high enough for you to transfer your existing balance?
Answering these questions could help you decide if a balance transfer card is right for you, and even help consider which card you should apply for.
How a balance transfer card affects your credit score
If you decide to apply for a balance transfer credit card, it could affect your credit score. Here’s what you need to know:
A new credit check
Applying for a new balance transfer credit card will result in a ‘hard’ search on your credit report. Initially, you may see your credit score decrease slightly.
Responsible account management
Transferring your balance to a new credit card and paying this debt could show good account management. Doing this over a prolonged period can improve your credit score and demonstrate to prospective lenders that you’re financially responsible.
Closing old credit cards
If you decide to close your old card account after you’ve transferred the balance, it could benefit your credit score over time.
FAQs
What is a 0% balance transfer credit card?
A zero-interest balance transfer credit card offers 0% interest on your debt repayments once they’ve all been consolidated onto one card.
Typically, the 0% interest on these cards only lasts for a limited time. So, those looking into balance transfer credit cards must understand when this period will end and plan accordingly to avoid facing further repayments.
How many credit cards should I have?
There is no correct number of credit cards to have. This will ultimately depend on your financial situation and how financially responsible you are when it comes to managing debt repayments.
However, if you are struggling to pay your debts, consolidating them onto one balance transfer card could help you track and manage all your existing repayments and avoid mounting interest.
How often should I do a balance transfer?
This will ultimately depend on how large your debt is, the repayments you can afford and the range of balance transfer credit cards available.
Moving your debts to a balance transfer credit card with a more attractive interest rate can be an effective way to keep interest to a minimum; however, some cards may charge for the transfer.
What is the difference between a balance transfer and a money transfer?
Although these terms sound similar, they are completely different processes.
A balance transfer is when you move existing debt from one credit card onto another credit card, making it possible to manage your repayments more easily.
A money transfer is when you transfer money from a credit card into a savings or current account. Find out more in our guide to money transfer credit cards.
How long does a balance transfer take?
Typically, a balance transfer can take anywhere from a few days to a couple of weeks. Ultimately, the length of time it takes depends on the amount of credit and debt that needs to be transferred, so, it may take longer for some than others.