If your credit card debt is piling up, you could find yourself paying more in interest than the original debt itself. To get out of this situation, you can transfer the balance onto another credit card through a balance transfer. A balance transfer is a great way to avoid paying interest on your current credit card by swapping to a second card with a lower interest rate – or none at all. It also makes managing your money easier by moving all your credit card debt to one place. In this article, we will explain how a balance transfer works and how you can get one done in as little as five minutes.
How does a balance transfer work?
A balance transfer is a process of moving the balance from one or more credit cards over to a balance transfer credit card.
Effectively you are paying off your old credit card with your new credit card, meaning you stop paying interest on your old card. The new credit card should have a much lower rate, sometimes as low as 0% for a fixed period. It is worth remembering that some providers charge a transfer fee of a percentage of the amount moved over, which is then added on to the new balance.
How to do a balance transfer
Most standard credit cards have an interest-free period of around 56 days, after which interest charges will be applied to your balance. Many balance transfer credit cards have much longer 0% periods stretching over years. If your interest-free period is coming to an end and you have an outstanding balance on the card, you should think about transferring the debt before interest is applied, giving you more time to pay the debt off at a low rate. It can be done in 5 simple steps:
Step 1 - Check eligibility
You can use Money to the Masses partner Creditec* to quickly build a list of the credit cards that match up with your needs. By simply adding in a few basic details, you will get a tailored collection of the best credit cards for you. You can use your Creditec results to check how likely you are to be accepted for a certain card, which cards available to you offer the best rewards or find out what option will leave you with the lowest fees to pay. Creditec is able to check your eligibility without running a full credit check, which means your credit score will not be affected. Click this link to start your comparison*.
You should also work out how much you need to transfer from one card to another and look up the interest rate on your current credit card, to ensure you are switching to a better deal.
Step 2 - Pick the best deal
Once you have filled in your details on the eligibility calculator, you now need to ensure that you are picking the best deal by checking the:
- Interest rate: You want the lowest interest rate, so go for a 0% deal. Look for the lowest interest rate amongst the cards if you are unable to get a 0% deal.
- Credit card term length: Choose the longest term length at the lowest rate. Work out how long it will take you to clear the debt by dividing what you owe by the amount you can afford to repay each month. The longest 0% term can be up to 30 months, but shorter period will be more widely available as the longest 0% periods are often only available to applicants with good credit scores. Keep in mind that the rate will shoot up once the offer period ends, so you should budget to pay off the debt before then.
- Transfer fee: You want a low percentage transfer fee and one that is guaranteed, not set to change once you have applied. Some cards will come with a 0% transfer fee, but may have a shorter interest-free term than a fee-charging card. You will need to decide which option is more important to you.
Step 3 - Apply for a credit card
After finding the best credit card deal for you, complete the application. When you are asked how you are going to repay the balance, always opt to pay more than the minimum. We explain the reasons why in this video: 'Top Tips to pay off credit card debt'. You will generally find out if you have been accepted immediately, but in some cases could be asked to provide further information.
Step 4 - Activate your credit card
Once you have applied and been accepted, you will be sent the balance transfer credit card in the post. It normally takes between 5-7 working days and the credit card and pin number will be sent separately. You will need to activate the card and verify you have received it for the transfer to be completed.
Step 5 - Transfer your balance
The final step is to transfer your balance. In some cases you will enter the balance transfer details when you apply, which means that the provider should action the balance transfer as soon as the account is activated.
How long will it take for my credit card balance transfer to go through?
Credit card balance transfers can be completed by next working day or take up to to two weeks from the transfer request. The credit card provider will usually state online how long you should expect the transfer to take. If the balance transfer has taken more than two weeks, it may be worth contacting the provider to check if there are any issues that may need resolving.
Things to remember before applying for a credit card balance transfer
In your haste to get rid of hefty interest fees it can be easy to rush into applying for a balance transfer but before you do, ensure you understand the following:
Check how long you have to transfer the balance
Some companies specify a balance transfer period of around 30 days, so ensure you do it within the specified timeframe if you have not set up an automatic transfer.
If you get rejected it may negatively impact your credit score
It is best to complete our online eligibility calculator to understand your chances of getting accepted when applying for a credit card. If you are rejected, this may negatively impact your credit score and affect your ability to borrow in the future. Read our article '5 things to do if you’re turned down for a credit card' to find out what steps to take.
Don't forget the credit card balance transfer fee
The card balance transfer fee is normally between 2% and 4% of the balance being transferred. Some providers offer better rates, but remember the advertised rate is not always the one you end up with.
Avoid spending on a balance transfer credit card
Some balance transfer credit cards do not allow you to spend on them, but with the ones that do it is not advisable to use the facility as they will often charge a hefty interest rate. If you are looking to transfer a balance to a credit card and use it for purchases there are specialist 0% balance transfer and purchase credit cards that offer a 0% interest rate period for both balance transfers and spending. The spending rate is generally for a shorter term.
Keep in mind that the purpose of a balance transfer should be to clear your credit card debt quicker. Making additional purchases on the card will mean racking up more debt that you will need to pay off, making it hard to clear the balance within the offer window.
How to clear debt with a 0% balance transfer credit card
For more tips to pay off credit card debt see our article, check out our article 'The 5 simple steps to clear your credit card debt'. You can also watch this video to hear Damien and Lauren discuss how to manage your debt with a 0% balance transfer credit card.
If a link has an * beside it this means that it is an affiliated link. If you go via the link Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. But as you can clearly see this has in no way influenced this independent and balanced review of the product.
