A balance transfer credit card can help you make expensive debt cheaper. By transferring the balance of a card charging a high rate of interest over to one charging a low rate, you could potentially save yourself a significant amount of money over the course of the repayment period. A balance transfer credit card can also make managing debt easier, as ideally, you would only need to make one monthly repayment rather than several. It will not be the best option for everyone, especially as taking out an extra line of credit can be a mistake for some people. In this article, we will explain the basics of a balance transfer credit card and help you understand the pros and cons of using one to manage your debt.
What is a balance transfer credit card?
A balance transfer credit card is a specialist credit card that can receive the outstanding balance of a different credit card. You can even transfer over the balances of several credit cards. This can be a good way to consolidate multiple debts into one repayment or to make your existing debt cheaper. We go through each step in our article 'How to do a credit card balance transfer in 5 minutes'.
Many balance transfer credit cards will offer an initial low-interest period, sometimes lasting as long as three years. This means you could be paying as little as 0% interest on your debt for a significant period of time. By transferring your balance and spreading your repayments across the interest-free period, you could prevent interest building on your debt and save money.
While this may seem like a cheap and easy way to get out of debt, you should keep in mind that a balance transfer credit card is still an extra line of credit. Taking out an additional borrowing option may be the wrong choice for some people struggling with debt. Read our article ‘Where to get free debt advice’ to learn more about how to find the best option for you.
What is my credit card balance?
Your credit card balance is the amount of money you owe your credit card provider. When you spend using your card, your balance goes up. When you make a repayment, the balance goes down.
If you do not pay off your balance in full at the end of the month, the amount you owe will increase by the interest rate set by your provider. This means that if your interest rate is 0%, your balance will not increase.
How do balance transfer credit cards work?
A balance transfer moves the debt you owe on one credit card over to another credit card. You are effectively paying off your existing debt by creating a new debt with your new balance transfer credit card. The cost of making a balance transfer is usually a percentage of the amount you are transferring. Keep in mind that this figure is different to the interest rate you are paying on the debt.
Balance transfer credit card providers regularly offer limited-time 0% interest deals to encourage new customers to move their debt over. This initial rate can last for months or years, but will eventually end. Once it does end, the new rate will likely be much higher. This means that the best way to use a balance transfer credit card is to make sure you pay off your outstanding balance before the introductory offer runs out. Alternatively, you could try and move your debt to another balance transfer credit card at the end of that period, but be aware that you may be subject to another balance transfer fee.
Here is an example of how a balance transfer credit card could work for you:
It will take 25 months to clear a balance of £3,000 on a credit card that charges 30% interest if the holder repays £150 a month. They will end up paying £1,004 in interest charges the 25 months.
Alternatively, a balance of £3,000 could be paid off in 25 equal payments of £150 a month on a balance transfer credit card that charges 0% interest for 28 months, plus a balance transfer fee of £104.70 (3.49% of the debt moved).
In this scenario, using a 0% balance transfer credit card saves £899.30.
| Standard credit card | Balance transfer credit card | |
| Balance | £4,000 | £4,000 |
| Interest rate | 30% | 0% (for the first 28 months) |
| Monthly repayments | £150 | £150 |
| Time to clear balance | 25 months | 25 months |
| Total cost of clearing balance | £1,004 (interest payments) | £104.70 (3% balance transfer fee) |
How fast is a balance transfer?
Unfortunately, there is no way of knowing exactly how long it will take. A balance transfer should be completed within seven days, though it can be done sooner. In some cases, a provider may take a few weeks to complete the process. The time it takes for you will depend on your current card provider and where you are moving your balance over to.
What are the pros and cons of a balance transfer credit card?
A balance transfer credit card will not be for everyone. Here are the pros and cons to help you decide the best option for your financial situation.
Pros of a balance transfer credit card
- Consolidate debt from other credit cards onto one card, which will allow you to make a single monthly payment rather than several payments
- Save money on interest payments with a lower interest rate
- Clear your debt quicker with a lower interest rate
Cons of a balance transfer credit card
- You may have to pay a fee on any balance transfer
- Lower interest rates only apply for a limited period of time
- Having an extra credit card could tempt you into spending more and incurring additional debt
- Not clearing the debt within the initial low-rate interest period could mean you are paying an even higher rate than you were before
- The best deals are often reserved for the applicants with the best credit scores. If you have a low credit score, you may find that you are offered a shorter introductory period or a higher interest rate.
Will using a balance transfer credit card affect your credit score?
In the short term, applying for a balance transfer credit card will affect your credit score in the same way that applying for any form of credit will affect your credit score. The credit card provider will run a ‘hard’ credit check on your file as part of the application process. Too many hard checks will have a negative affect on your score, as it could suggest you are desperate for credit and struggling to manage your finances.
In the long term, a balance transfer credit card can boost your credit score by helping you clear expensive debt. If you can meet all of your repayments and clear your balance, you will see your credit score start to head in the right direction.
You can find out how to boost your credit score by reading our article ‘How to improve your credit score quickly’.
What is a 0% balance transfer credit card?
A 0% balance transfer credit card works in exactly the same way as any other balance transfer credit card, with the added bonus that initially you do not have to pay any interest. This means that even if you still have an outstanding balance at the end of the month, what you owe will not increase like it would on other credit cards.
The length of the initial interest-free period will depend on your credit card provider and your financial history. Some providers will offer interest-free periods of up to three years. However, not every successful applicant will get the maximum advertised term, as it will usually be reserved for those with the best credit ratings.
It is important to remember that a 0% balance transfer credit card is still not free, as you will likely have to pay a transfer fee. This is usually a fixed percentage of the balance you are moving over. Also, keep in mind that using your balance transfer credit card for anything else – including spending – may incur extra interest charges or fees.
Read our article ‘Which are the best balance transfer and purchase credit cards?’ to find out more about spending using a balance transfer credit card.
Which are the best 0% balance transfer credit cards?
The best option is likely to be the card that offers the longest period of 0% interest. However, there may be other factors that push you towards a different card, such as the balance transfer fee and the interest rate applied once the introductory offer ends. It is important to compare deals and do your research to track down the best option. You can find out more about the best 0% options on our ‘Best 0% balance transfer credit card deals’ page.
Finding the best 0% balance transfer credit card for you
We have teamed up with Creditec* to help you compare credit card deals and check your eligibility in minutes. You will be able to find out which credit cards you are most likely to be accepted for through a soft credit check, which will not affect your credit score. You can then tailor your personalised list to sort cards by the features that matter most to you. This could mean filtering for the type of credit card you want, sorting the list by the rate of interest or highlighting the cards you are most likely to be successful in applying for. You can click here to compare deals*.
Is a balance transfer free?
Many balance transfer credit card providers will charge a fee when transferring the balance, with the typical charge ranging from 1% - 3%. The charge applies to the amount you are looking to transfer, so a £1,000 balance transfer with a fee of 3% would cost £30. Always read the terms & conditions of your chosen card provider so that you know how much you are going to be charged.
You may find that your provider requires you to transfer at least 90% of the credit limit of your existing card. This could mean that it is more expensive to transfer the balance, but make sure to think about the total cost of using the card. Some providers will not charge a fee at all, but you may find that this is balanced out through charging a higher interest rate or offering a much shorter 0% interest free period.
Can I get a balance transfer card with poor credit?
Having a low credit score or a poor credit history will not necessarily stop you from getting a balance transfer credit card. However, you may find that you are offered a higher rate of interest, or that any introductory offers only last for a few months.
You may still get a deal that is good enough to help you repay your outstanding credit card balance, or you could focus on taking steps to improve your credit score in order to access the best possible offers and rates.
How much can I transfer?
The total amount you can transfer to your new balance transfer credit card will be limited by your provider. This is because every successful applicant will be issued with a credit limit, which is the maximum you can borrow using the card. You will not be able to transfer your full balance if that balance is higher than the credit limit on your new card. In that scenario, you should try to make sure you move over the most expensive debt first. Additionally, providers will usually limit the amount you can transfer, limiting you to around 95% of the available credit card balance. So, if you were offered a credit limit of £5,000, you may find that your balance transfer is limited to £4,750.
Balance transfer credit cards vs personal loans
If you have a large balance on your credit card, you may be contemplating whether to transfer this debt to a low interest credit card or take out a personal loan to pay off the debt. This can be a tricky call to make. The right option depends heavily on your personal circumstances and financial history. Read our guide ‘Is it better to get a credit card or a personal loan?’ to help you find the right answer.
What other types of credit card can I get?
There are a lot of different types of credit card available in the UK, so you should be able to find a suitable option for almost any financial situation. If you are looking to match your lifestyle to a type of credit card, read our article ‘Which credit card is best for me?’.
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