Helping a friend out by balance transferring their debts onto your credit card could save them a bundle in interest - but is this actually allowed, and if so should you do it?
Taking advantage of a 0% balance transfer deal is a good way to cut the interest you’re paying on your debts so you can start reducing your credit card balances.
But can you or should you, do the same for someone else?
It is possible to use a balance transfer to pay off debts on someone else’s credit card.
You do this in much the same way as you’d transfer a balance between two of your own credit cards.
However, while it’s possible, moving someone else’s debts on to your credit card isn’t a decision to be taken lightly and you’ll need to carefully consider the implications before you go ahead.
There could be several reasons why you might be considering transferring a balance from someone else’s credit card to your own.
This is perhaps the most clear cut reason why you would consider accepting a balance transfer from a friend or relative’s credit card.
If you owe the person money or it’s actually your debt that you’re looking to move - for instance if they had bought something for you using their card - completing a balance transfer in this way could be an affordable means of simplify your finances.
However, in this instance making a balance transfer is unlikely to be the cheapest option when it comes to repaying the money.
You are likely to pay a transfer fee for the privilege of moving the balance to your credit card. This is usually around 3% of the balance, so if you can use cash to clear the balance rather than putting it on your credit card you’ll save money.
That said, if you don’t have enough spare cash, choosing a card with a long enough interest free period for you to repay the debt could be cheaper than getting a personal loan or using your overdraft which are both likely to charge more interest than your credit card, despite the 3% fee.
If you have a better credit rating than your friend or relative then you may have access to a cheaper credit card or a longer 0% balance transfer offer then they do.
If this is the case then you are essentially lending the person money to clear their credit card and using your cheaper credit card to complete the transaction.
But even though doing this could save them money, there’s a lot more to consider.
The most important decision you need to take before you transfer someone else’s debt onto your credit card is whether you are happy to take responsibility for it.
As soon as the debt is transferred to your account it becomes your debt, and you are then responsible for ensuring that it gets repaid on time.
If your friend or relative is intending to make the repayments you need to be confident that they will do this on time each month without fail.
Remember, if they don’t pay you each month, you will still have to pay the credit card company or face non payments charges and potential damage to your credit rating.
You’ll also need to make sure that any balance you accept is completely cleared by the end of the 0% period or you could face significant interest charges that you would ultimately be liable to pay.
Another important factor you need to consider when deciding whether to transfer a balance from a friend or relative’s credit card, is how it will impact on your own finances.
Assuming that your friend will continue to make repayments to clear the debt over time, you need to consider if you would still have access to credit if you wanted or needed it.
From a lenders point of view it would now look like you have a balance outstanding, so you may find that your future applications generate more expensive offers or that fewer options are available when you need credit than if you had refused to accept the transfer.
Accepting a debt transfer from a friend or family member’s account is essentially the same as lending them the money to pay it off – just instead of lending cash you are giving them access to your cheap credit so even more is at stake.
Before you go ahead with the transfer you need to agree up front how much they’re going to pay off each month and consider putting it in writing so you can both refer back to what was agreed at a later date should you need to.
While this may seem a little formal, taking these steps before agreeing to the transfer is a good way to protect your finances and your friendship.
For more help deciding if this is the right choice, read our guide: Lending to Friends: How to Make Sure You Get Your Money Back.
If your friend or relative is struggling to repay their debts, or is only offered expensive options by the banks because they have a bad credit rating, you need to consier whether accepting a balance transfer is actually in their best interests.
Although it may save them interest, if they then rack up new debts on their old credit card they could soon find themselves in a worse financial situation than when you agreed to the transfer.
Potentially they could get themselves in a situation where they weren't able to repay you so you'd need to find the money to clear what they owe.
Although no one likes to consider what would happen should the worst happen, if you are considering taking on sizeable borrowing for a friend you are leaving yourself at risk to being burdened with their debt should they pass.
One potential solution is to ask that they take out a life insurance policy (payable to you) to cover the debt if something happens.
Life insurance policies can be specifically designed to run alongside the decreasing balance of and outstanding debt and last for a fixed length of time until the money they owe you is repaid.
This type of life insurance is called Decreasing Term life insurance and is usually the cheapest type of cover, although premiums can vary dramatically so they would need to shop around before taking out a policy.
You would also have to ensure that the policy was made payable to you directly, either through the life insurance policy or stated in their will, so if they did pass away you would receive the funds to pay off their debt.
If you have carefully considered the implications of taking responsibility for someone else’s debts and you still want to proceed then you can arrange the transfer through your credit card provider.
If you are completing the transfer to make the most of a 0% balance transfer deal then you need to arrange the transfer as early as possible so you maximise the interest free benefit from the card.
All you will need is the credit card number from which you are receiving the debt and the amount that you wish to transfer. You should then be able to directly request the transfer from your card provider.
Once the transfer is completed it may be a sensible idea to get your friend to set up a direct debit to to pay off the balance.
If you set up the payment so that clears in advance of the payment deadline you'll have the opportunity to check that the repayments are being made and not have to worry about missing any repayment deadlines and incur any charges.