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What is a balance transfer credit card?

A balance transfer allows you to move existing credit card debt onto another card with a lower or 0% interest rate.

Our guide explains how balance transfer credit cards work and things you should know before you apply for one.

How does a balance transfer work?

Balance transfers work by moving your debt from one or more credit cards to another credit card. Any money you owe – your balance – is moved over to the new card. 

This is usually done to take advantage of a 0% interest (or low interest) introductory period. For example, if you’re paying high interest on your credit card, moving the balance over to a 0% balance transfer card would mean you’d pay no interest until the deal ends. It can help you pay off the balance faster and pay less interest overall. 

Once the promotional deal ends, the interest will rise – so, ideally, you should try and clear the debt before this happens. 

Explore: How to use a balance transfer credit card

Benefits of balance transfer credit cards

Used wisely, a balance transfer credit card can help you:

  • Take advantage of a 0% or low interest period to pay down more of what you owe and clear your debt faster
  • Keep on top of repayments, especially if you move several credit card balances onto one balance transfer credit card

Things to consider before you apply

While they can be an effective way to manage credit card repayments, there are a few things to consider before you apply for a balance transfer credit card.

What is the balance transfer fee?

There's often a one-off handling fee when you make a balance transfer. 

It's usually a percentage of the amount you're transferring. You'll generally be charged up front and the amount will be added to the balance. 

Some providers also charge an annual fee. It’s important to take all fees into account when you’re assessing potential savings of a balance transfer against your current credit card.

Explore: How to avoid credit card charges

How long is the interest-free period?

The length of the interest-free period is often set out in months, for example 0% for 24 months. To maximise your potential savings, you want to try to pay off your debt within the interest-free period

Explore: What is a 0% interest card?

What happens after the interest-free period ends?

Once the promotional period ends, the interest rate will likely revert to the purchase interest rate. You’re likely to be charged more interest on any existing debt, or future purchases. 

You should be aware of the ongoing APR, and what the terms are for using the card after the balance transfer period. 

Explore: What to do at the end of a balance transfer promotion period

Can you afford the balance transfer credit card repayments?

As with normal credit cards, you need to pay at least the minimum repayment every month and on time. If you don't keep up the repayments, you could find that the interest-free offer is withdrawn. 

While it’s possible to only repay the minimum each statement period, it’s ideal to repay as much as possible so you clear your debt faster.

Before taking out a balance transfer, set yourself a target date to clear the debt. This will help you figure out how much you should try to repay each month.

Is a balance transfer credit card right for you?

Most balance transfer credit card providers will charge you their standard interest rate on purchases. However, the benefit of a balance transfer card is being able to focus on clearing existing debt. 

If you’re going to continue spending, it may not be the right type of credit card for you. 

Some cards offer 0% on balances and purchases, but the interest-free period is usually much shorter than other balance transfer credit cards.

What else do you need to know about balance transfers?

Approval for a balance transfer credit card, and the credit limit will depend on your credit score and your income. This may affect how many transfers you can bring together on one credit card. Most banks also won't let you switch balances from one of their cards to another – including cards provided by other brands they own. 

Applying for too many credit cards, or switching too often, will show on your credit report and could negatively impact your credit score.

If you’d like to speak to someone about your finances, arrange an individual review with us to see how we can help.