If your credit card debt is piling up and you find yourself paying off more in interest than the actual loan itself, you can transfer the balance onto another credit card.
A balance transfer is a great way to manage debt and avoid paying interest on your current credit card and allows you to swap to a card that has a lower interest rate or none at all. It also makes it easier to manage your money in one place and on one card.
How does a balance transfer work?
A balance transfer is a process of transferring one or more credit card balances to a balance transfer credit card.
Effectively you are paying off your old credit card with your new credit card, but you are saving on the interest you were paying on your old card. It is worth remembering that some banks charge a small transfer fee which is added on to the new balance.
How to do a balance transfer
Recently I transferred a balance from one of my credit cards to another as my 0% interest term had run out and I was about to pay interest on my balance. It can be done in 5 simple steps:
Step 1 - Check eligibility
Before you start the process you need to work out how much you are transferring from one card to another. You will also need to work out the interest rate on your current credit card, to ensure you are switching to a better deal.
It's a good idea to use an online eligibility checker before completing a full application as, if you're rejected, it could damage your credit score. The eligibility checker only runs a "soft" search, which won't leave a mark on your credit file. To check if the credit card provider you are considering has an eligibility checker, check out our comprehensive guide "How to find the best credit card for your needs".
Step 2 - Pick the best deal
Once you have completed 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, if you are unable to get a 0% deal look for the lowest interest rate amongst the cards
- Credit card term length - go for the longest term length at the lowest rate. Check how long you need by working out how long it will take you to clear the debt. The longest 0% term is 40 months, however, 18-27 months is more widely available.
- Transfer fee - You want a low percentage transfer fee or one that is guaranteed and not set to change once you have applied.
Step 3 - Apply
After finding the best credit card deal for you, complete the application. You will be asked how you are going to repay the balance, always opt to pay more than the minimum the reasons why are explained 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 card
Once you have applied and been accepted for your credit card balance transfer you will be sent the 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. When I applied for the credit card I entered the balance transfer details there and then so that the bank did it automatically once the account was activated.
How long will it take for my credit card balance transfer to go through?
Credit card balance transfers can take anything from the next working day to 2 weeks after the transfer request. The bank or credit card provider will state online how long the transfer will take and this varies between providers. If the balance transfer has taken more than 2 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:
How long you have to transfer the balance
Some companies specify a balance transfer period, so if you have not set up automatic transfer ensure you do it within the specified timeframe.
If you get rejected it may negatively impact your credit score
It is best to complete an online eligibility calculator to improve your chances of acceptance when applying for a credit card. If you do not get accepted this may negatively impact your credit score and therefore you may not get accepted when it comes to applying again.
Don't forget the credit card balance transfer fee
The card balance transfer fee is normally 3% of the balance being transferred. Some providers offer better rates but remember the advertised rate is not always the one you end up with.
Don't spend on a balance transfer credit card
Some balance transfer credit cards do not allow you to spend on them, and 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 some credit card companies that offer a dual credit card with a 0% interest rate for both balance transfers and spending. The spending rate is generally for a shorter term.
I wouldn't recommend applying for one of these credit cards as the purpose of the exercise is to clear your credit card debt quicker, so you could be in danger of racking up more debt and more interest, which is exactly what you are are trying to avoid.
How to clear debt with a 0% balance transfer credit card
Damien and Lauren discuss how to manage your debt with a 0% balance transfer credit card. For more tips to pay off credit card debt see our article - The 5 simple steps to clear your credit card debt