This is usually done to take advantage of the offer of an interest-free period – helping you reduce the interest you pay.
Before taking out a balance transfer credit card it’s important to consider the conditions, as well as what will happen after the interest-free period ends.
Here are some of the key considerations and questions.
If you’re confident you can repay your debt within a certain timeframe, a balance transfer can enable you to minimise the amount of interest you pay. For example, you might have a debt of £3,000 on your current credit card and be being charged a rate of 21% interest, or higher.
A balance transfer credit card may have an offer of an interest-free period. This means you’ll pay 0% interest on the debt for that time, potentially allowing you to clear the debt before the promotional period ends. After the promotional period ends, the balance transfer debt will likely revert to the purchase interest rate.
Explore more: How to use a balance transfer
Often there's 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 account of all fees when you’re assessing potential savings of a balance transfer against your current credit card.
Explore more: How to avoid credit card charges
The length of the interest-free period is often set out in months, for example 0% for 32 months. To maximise your potential savings, you want to try to pay off your debt within the interest-free period. Once this has ended, the interest rate will likely revert to the purchase interest rate.
Explore more: What is a 0% interest card?
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 If you don't keep up repayments, you could find that the interest-free period is withdrawn.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 time by which you want to clear the debt. This will help you figure out how much you should try to repay monthly.
Most balance transfer credit cards 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.
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.
Also, most banks won't let you switch balances from one card to another in the same banking group. Applying for too many credit cards, or switching too often, will show on your credit record and could negatively impact your credit score.
If you would like to speak to someone about your finances, arrange an individual review with us to see how we can help.