Balance transfers explained
What is a balance transfer?
A balance transfer is when you transfer some - or all - of your credit card debt to another credit card, usually to save money on interest repayments.
Why do people do balance transfers? What are the benefits?
Balance transfers are an easy way to stay organised and keep your credit in one place, and if the rate on your new card is lower, you could save money on interest payments.
If you’re paying less interest and reducing the overall cost of what you owe, you could pay off your outstanding debt sooner.
How do balance transfers affect your credit score?
Even though balance transfers can help you tackle debt – thereby improving your credit score – they can hurt your credit score, too.
If you apply for several different cards with low or 0% introductory interest rates, this can affect your credit score. This is because when you open several new accounts, you bring down the average age of all your credit accounts.
It’s up to you how many cards you apply for, but it’s often best to apply for one card at a time.
How do I set up a balance transfer?
This varies from bank to bank – the best thing to do is speak to your bank or credit card company, or check their website, to find out how to transfer your balance. Some banks may let you do this online.
Before you commit to a balance transfer, make sure you’ve shopped around for the best deal.
When your transfer is set up, you must remember that you owe money to a new and different provider. As well as paying a new interest rate, you may be charged a fee to transfer the balance.
Do balance transfers cost anything?
Yes - credit card companies usually charge a fee for balance transfers. The fee will depend on how much debt you’re transferring, and the length of the introductory period.
When you’re setting a balance transfer up, make sure that the initial costs of reduced interest payments aren’t swallowed up by the transfer fee.
How long does it take to sort out a balance transfer?
It depends. If you’re switching to a different credit card but staying with the same bank, the transfer can be sorted out the following business day, unless you make your request after 6pm, or on a weekend or Bank Holiday.
If you’re switching to another bank’s credit card, it could take several days – check with both banks before you set up the transfer.
Bear in mind that your balance transfer will only go ahead as long as you pass normal security checks, and there aren’t any issues with your existing credit provider.
Is a balance transfer right for me?
A balance transfer could be right for you if:
- You’re looking to consolidate your debts
- You want to take advantage of a promotional deal or offer with low interest rates
- You’re looking to start taking charge of your debt and clear it as quickly as possible
To get the most out of your balance transfer you should always pay at least the minimum payment on time, stay within your credit limit, and aim to pay off your balance before the offer runs out.
If you don’t settle your debt before the promotion expires, you may lose any competitive rates you’ve been enjoying – and your payments could become more expensive.
Potential issues with balance transfers
Interest rates: If you’re switching to take advantage of a competitive interest rate, once it finishes, the interest rate can go up. Check to see if the final rate is competitive with other cards.
Transfer limits: You’ll need to transfer a balance that’s within the credit limit on your new card, minus the fee.
Extra services: Your new provider might try and sell you extra add-ons, such as fraud protection. Check to see if you need them before you buy them – you may already be protected by the law to some extent.
Purchase freeze: It’s best not to buy anything with a card which you’ve used for a balance transfer. This is because any purchases you make will usually be charged at your card’s standard rate (unless there’s a 0% deal on purchases too).
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