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 credit card 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.
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.
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.