One of the most popular types of credit card offers is the balance transfer card. These cards are designed to help you move your existing debt from one credit card provider to another. This can help you take control of your debt and give you some respite from paying higher interest – though you’ll still have to make your minimum repayments.
Balance Transfer Cards are a great way to consolidate debts into one manageable sum or to reduce interest payments. Balance Transfer Cards offer a low or 0% interest rate for a fixed period as an introductory offer, so it’s a great opportunity to save some money which could have gone on interest payments with another card provider.
Should I use a Balance Transfer Card?
If you have used your credit card for some big purchases recently such as a holiday, home improvements or for Christmas, chances are, the debt on your credit card will lead to a typical interest rate of about 25%-35% and repayments may become difficult.
By taking out a Balance Transfer Card, you could be able to move this debt into a 0% interest deal for a fixed period of time which could be anywhere between six months to more than two years. It could be a great opportunity to save some of your well-earned cash or make progress paying down that debt!
Important things to consider…
There are some things you need to think about before applying for a Balance Transfer Card. Firstly, card providers often charge a fee to take up these offers. These fees can be between 1-5% of the total value you are transferring. This is how the lender makes money from the offering. For example, if you were transferring a balance owing of £1,000, you are likely to have to pay a fee of up to £50. Make sure you factor this fee into any of your calculations before applying. Some card providers may not charge this fee, but are likely to have shorter introductory interest rate periods.
Secondly, after the introductory period ends, the interest rate will reset to its standard variable rate. This could lead to considerably higher repayments. You could set up a direct debit to help you pay off the debt in time. 0% Balance Transfer Cards can have a variety of different windows on their introductory offers, so make sure you choose the offer that is right for you.
Do not miss or make late repayments on your card. This could hurt your credit score as well as prompt your card provider to recall their introductory offer – leaving you on the hook for the higher interest rate.
Be aware that the introductory interest rate for balance transfer cards is usually on the balance, not on purchases (unless this is made clear in the offer). That means if you use your balance transfer card as a payment card, any items you buy may attract high interest rates, for example, 21% on purchases, even during the introductory period.
Lenders may provide credit under several different brand names for cards, and you’ll need to understand that it is unlikely you will be able to switch your balance from one card provider to another within the same group. For example, Virgin Money and Yorkshire Bank both sit within the Clydesdale Bank Group, and M&S and First Direct sit within the HSBC Banking Group.
Also, Balance Transfer Cards often have a limit on how much debt you can transfer to the new card. This might be 90-95% of your credit limit.
Finally, make sure you have done your research. Check your credit score with Credit Karma and use our credit factors to make sure your score is in the best position it can be. Check out the offers on our marketplace, you may be able to find a card you already know comes with a high chance of approval. Be sure to do your sums, work out how long you’ll need to pay off the debt and what is a realistic amount to pay off each month. Always read through the terms and conditions to make sure you are aware of all the repayments and fees.