Balance transfer credit cards

Balance transfer cards let you easily shift high-interest debt held on an existing credit card (or cards) to a new card with a lower interest rate – as low as 0% in many instances – for a fixed introductory period. Read our guide for everything you need to know about how balance transfers work and FAQ.

Balance transferring doesn’t eliminate your debt, but it massively reduces the amount of interest you need to pay – so you can pay the debt off more rapidly and be debt-free once again.

What is a balance transfer credit card and how do they work?

In many respects, balance transfer credit cards look and function like other credit cards. You can use them for shopping, you’ll get a statement like you would any other credit card, and you can choose how much you want to repay each month (as long as that amount exceeds the required minimum).

Although balance transfer cards can be used like other credit cards, you should try to use them simply to transfer a balance and reduce your interest payments.

Balance transfers are routinely offered by many of the UK’s largest credit issuers, and most cards are pretty similar: once you have applied and are accepted, it’s usually very simple to transfer a balance from a card (or cards) to your new card. After making a transfer, which can take a few days, you can close your old account and start making repayments to your new supplier.

Because you are no longer accruing interest on a daily basis, your monthly payments will now be used to repay the original debt, rather than covering the interest you have accrued in the past month. If you continue making payments at around the same level as you were before, you can quickly make a sizable dent in the money you owe.

Getting the best balance transfer card

While most balance transfer cards operate in a very similar fashion, some cards are better than others. Unfortunately, working out which is the best for you is entirely dependent on your financial situation – there is no “one size fits all” card that is better than the rest.

How do you go about choosing the best card? You need to assess your financial situation: how much debt you have, and how much you can afford to repay per month. Then you need to assess the following three criteria, which are intrinsic to every balance transfer card:

Interest rate

Most UK balance transfer offers let you pay 0% interest for a particular period – sometimes up to 36 months – and these are by far the most popular products. There are low-interest options available too, which may make more sense if you only need a couple of months to pay off your debt.

Promotional period duration

Because most UK balance transfers offer 0% interest, many people get fixated on the length of time the offer is valid for. While this is a significant consideration, especially if you are unlikely to clear your balance within that period, it should not be regarded in isolation, as cards with market leading durations typically charge higher balance transfer fees which add to the debt you must repay.

Balance transfer fees

The main fee associated with balance transfer cards is the balance transfer fee. These one-off fees are charged when you transfer a balance, typically at about 2 to 5% of the transferred amount.

These fees are likely to be the most significant single outlay when moving a balance, so getting the best balance transfer is mostly about minimising these fees. Although not accurate in every instance, balance transfer fees typically increase in line with the transfer duration, i.e, the longer you get at 0%, the more you’ll be charged. If you can reduce the period you need your balance transfer card for, you can save money on transfer fees – or even eliminate them entirely, since some cards (particularly low-interest cards) occasionally offer fee-free transfers.

A small number of balance transfer cards also charge an annual fee, which can add up over 2 or 3 years. Do the maths and make sure your chosen card is the right one for you.

Getting your finances back on track with a balance transfer card

Balance transfer cards can save you a considerable amount of money if used correctly. But they can also be a catalyst for bad financial choices – for example if you use the credit available on your old credit card to run up a new balance. Even if you approach a new balance transfer card with the best of intentions, you can fall foul of the rules and find yourself back in the situation you were trying to avoid: paying a high rate of interest on a potentially sizeable chunk of debt.

To get the most from your card, it is essential you follow the golden rules of credit card ownership:

  • Always pay at least your monthly minimum on time*

  • Never exceed your credit limit

Failure to follow either of these rules will usually result in your 0% offer being immediately withdrawn, and your interest rate will return to double digits, with the added frustration that you may have paid a hefty transfer fee that you can receive little or no benefit from.

*Due to COVID-19 you can now request a freeze on minimum credit card repayments for up to 6 months.

Balance transfer cards and COVID-19

The coronavirus outbreak is affecting everyone around the world and has put a financial strain on many. If you currently have a balance transfer credit card and are struggling to meet your minimum payments, help is at hand.

Measures have been introduced by the Financial Conduct Authority (FCA) that allow you to request a freeze on credit card repayments. This is to give those experiencing a change in financial circumstances due to COVID-19 some breathing space. This won’t leave a bad mark on your credit history due to the exceptional circumstances. 

You can apply for a 3-month payment holiday, which can be ‘topped up’ to a total of 6 months; you have until 31 March 2021 to request your payment holiday. Make sure you’ve agreed to it with your lender before you stop paying!

If you can afford to make repayments it’s best to do so, as you will still be charged interest during this holiday period. You might end up paying more in the long run so only request it if you really need it.

Balance transfer credit card FAQ

How do I do a balance transfer?

When you apply for a credit card offering a balance transfer duration, you will be asked if you wish to transfer a balance (or balances). You will have to provide a list of the cards you want to pay off, plus how much money you want to transfer to each card. If you are successful in your application, your new credit card will automatically transfer money to your other cards.

Is the advertised balance transfer duration guaranteed?

Not always. Some credit card issuers only offer the advertised duration; in this case you are either offered the card or refused it. Other issuers offer a ‘downsell’ option, where you are offered an alternative card with a lower duration (and often a higher APR). Even if you’re offered the card you applied for, with the advertised balance transfer duration, it is not guaranteed that you will keep it. You will lose the balance transfer offer immediately unless you adhere to the strict terms and conditions of the card, which means staying within your credit limit and making at least your minimum monthly payment on time.

Can I transfer a balance whenever I like?

All cards have different terms and conditions regarding their balance transfers, but in general, there is a window of time (around 60 to 90 days) where you must transfer your balances to benefit from the 0% deal and fee. Any balance transfers made outside of this window will be subject to different fees and interest rates. Always plan to make your balance transfers in good time once your account is open.

How many times can I balance transfer to my new credit card?

When you apply for a new balance transfer card, you will be offered a credit limit, which is based on the card issuer’s financial assessment of you and your financial history. Your new card provider will allow you to transfer a percentage of this credit limit (usually up to 90%-95%) to debts on other cards.

Can I transfer an overdraft onto my balance transfer card?

No, but you can instead apply for a money transfer card, which allows you to transfer money from your credit card to your bank account. You can then use these funds to pay off your overdraft. There are some credit cards on the market that offer both balance transfers and money transfers, though they may not offer the lowest fees or the longest duration 0% periods.

Can I make purchases with my balance transfer card?

Yes. A balance transfer card is just like any other credit card in this regard. However, most dedicated balance transfer cards offer a comparatively short period of 0% on purchases, meaning that you will be charged the standard APR on any purchases made outside of this period. If you applied for the balance transfer card to pay off existing debt, it’s probably better to not make any further purchases on that card.

Can I use my balance transfer card abroad?

Yes. However, you should always check the fees and charges for foreign transactions and foreign ATM withdrawals before you travel. Some balance transfer credit cards do offer 0% on foreign purchases, or no fee for withdrawing cash abroad, but very few offer both. If you want a dedicated card for travelling, check out the fees on either travel credit cards, or travel prepaid cards.

If I pay off a credit card with a balance transfer card, will the old card be closed?

No. The card will remain active. All you have done is pay the balance on the card. If you have no plans to use it again, or want to avoid the temptation to use it again, contact your credit card provider to cancel it.

8 February 2021