Balance transfer credit cards let you pay off existing debt by transferring your balance from an existing card to a new card with a lower interest rate. This means you could clear your debt faster as you won't be paying as much interest.
When to use a balance transfer credit card
A credit card balance transfer should be used when the interest rate on your current credit card is too high, and you want to pay off a sizeable balance.
With a balance transfer to a new card, you could pay off your debt at a monthly cost you can afford.
If you are looking to cut interest on your balance and find the best card to make purchases at the same time, you may be able to find a balance transfer and purchases credit card to help you do both.
Key factors to consider when you apply for a balance transfer credit card'
When you're looking for the best balance transfer credit card, there are a few things to consider:
Decide how long you need to repay the balance you want to transfer. Divide your balance by how much you can afford to pay every month and find out how long you need to pay off the whole balance. For example, if you need to pay off £1,200 and you can afford to pay £200 a mont, then you'll need 6 months, to pay off the whole balance.
Use the comparison above to find the best deals. Look for cards with a 0% interest period that is long enough for you to repay the whole balance.
Check the fees for each balance transfer credit card. This is charged as a percentage of the amount you transfer (although some cards come with no fee).
Check with the 0% rate covers. Typically, the 0% introductory offer applies to balance transfers and not purchases. This means you'll usually have to pay higher interest rates on any purchases with the balance transfer credit card.
Remember that you can't transfer a balance between cards from the same bank/provider. For example, if you have a Natwest credit card, you can't transfer the balance to a Natwest balance transfer card.
How long is the 0% balance transfer introductory period?
With a 0% balance transfer credit card, the introductory interest free period can range from two months all the way up to 29 months.
The longer the introductory period, the more time you will have to pay it back, without paying interest.
Most providers will state that you must complete the balance transfer within a set period for you to get the 0% deal. For example, you may have to complete the balance transfer within 60 days of opening your balance transfer credit card. This is to stop the rate rising and any fees being applied.
Check the small print in the comparison table to find out the terms for each provider.
How long do you need to pay off your balance
It depends on how much you can afford to pay every month. Paying off your balance within the interest-free period helps you save money.
Let's assume you have a balance of £2,000 on your current credit card. Here's how long you'll need to pay it off depending on how much you can afford to pay monthly.
If you can pay £80, you'll need 25 months
If you can pay £100, you'll need 20 months
If you can pay £150, you'll need 13 months
If you can pay £200, you'll need 10 months.
These calculations assume you are offered a 0% balance transfer card with no fees.
What happens after the 0% interest-free period ends?
The interest rate usually increases sharply to what is known as the 'revert rate' or the Standard Variable Rate (SVR). This is why it's important to pay off your balance within the interest-free period.
If you paid your balance in full: You have nothing to worry about. You can either cancel the card, or keep it to make purchases in the future.
If you still have a partial balance remaining: You could opt to get another 0% balance transfer card for the remaining balance and pay it off without paying interest.
What is the balance transfer fee?
Some credit cards will charge what is known the balance transfer fee. This is either a flat fee or a small percentage of the amount you want to transfer. This usually added to your balance.
If you make a balance transfer of £2,000 to a credit card with a 2% balance transfer fee, it would cost £40, making your total transferred balance £2,040.
The balance transfer fee typically ranges between 1% and 5%. Some providers will also charge a set fee if you have a small balance to transfer.
You may be offered a balance transfer credit card with a fee of 2.9% or a £5 minimum. If you want to transfer £150 to this card, 2.9% of your transfer amount is only £4.35, so you would have to pay the £5 minimum.
How do you choose the APR?
The Annual Percentage Rate (APR) represents the yearly cost of your credit card debt. It includes the interest rate set by the credit card provider and any additional fees and charges.
You will pay a lower rate on top of your balance if you choose a card with a low APR.
If you don't think you will be able to pay off your balance in the 0% interest period, it is good to consider what the interest rate will be, once the introductory period is over.
What should I do with my old credit card?
Once you've transferred the balance from an old card you have two options. You can either close the card or keep it. Closing the card can impact your credit rating as it will affect your credit utilisation, which is the amount of debt you have compared to the amount of credit available to you.
Pros and cons of balance transfer credit cards
As with most finance products, there are advantages and disadvantages of doing a balance transfer:
helps you save on interest payments
allows you to consolidate debt and pay it off quicker
can be useful to spread the cost of large expenses
you may have to pay balance transfer fees
missing a payment can cost you your 0% interest rate, and you could end up paying more in interest than you were before.
Having a new credit card can tempt you into unnecessary spending.
Can you get a balancer transfer credit card with bad credit?
If you've got bad credit, there are still some options for you to get balance transfer credit card. It's likely that you'll have to pay a higher balance transfer fee and that the 0% interest period will be much shorter, typically ranging from five to nine months.
It's also likely that you'll be offered a lower credit limit, and that the APR once the interest free period ends will be much higher, i.e above 30%.
Unable to get a long enough 0% balance transfer deal?
If you cannot find a credit card balance transfer that gives you long enough to pay back the full balance before the interest free period ends you could:
Use another balance transfer deal once the 0% period ends
Get a lifetime balance transfer card that charges a low interest rate for as long as you need to pay it off
Alternatives to balance transfer credit cards
There are lots of reasons for how balance transfer credit card may not be the best option. Here are a few others to choose from:
For example, you might want to transfer a balance of £2,000 and have a balance transfer card offering a 0% rate for 20 months.
If you pay £50 a month, after 20 months you will have paid £1,000 and have £1,000 remaining.
If you have a balance transfer credit card with 19.9% APR after the introductory period, you will have to pay £199 on top of your balance.
With a balance transfer credit card with 21.9% APR after the introductory period, you will have to pay £219 on top of your balance.