A balance transfer card can help you manage your debts better if you are currently paying interest on existing debt. It will allow you to move debt from one or several cards to another. The new card might have an offer of 0% interest for several months as an introductory offer. There will usually be a small fee to make the transfer.
The amount transferred to the new card must not exceed the credit card limit on your new card. By consolidating your credit card debt into one place will make it easier to keep track of all repayments and control what you owe.
Reduce the interest you’re paying
With a 0% balance transfer you will be able to pay off the balance quicker. An introductory rate can last anywhere from six months to over two years. These cards are a good option as they will provide you more time to pay back your debt without incurring additional interest. Any repayments you make during this introductory period will go entirely towards clearing the debt rather than paying any interest.
Take note of when the period ends
After the introductory period ends, the interest rate will revert back to the standard rate. If you still have debt to repay after the period has expired, you’ll have to pay a significantly higher charge. The interest rate that the credit card goes back to is typically higher than other credit cards. Balance transfer cards are not designed for spending.
You should aim to clear all your debt by the time the introductory period ends. If you have debt remaining by the end of the period, it might be worth getting a new 0% balance transfer card. If you have a bad credit score, it might be harder to do this.
The difference between balance transfer cards and money transfer cards
- Balance transfer credit card
A balance transfer credit card allows you to move debt from one or more existing credit cards to a new credit card. This will help consolidate your debt from multiple cards into one. Fees are usually between 1 – 4% of the amount you’re transferring.
- Money transfer credit card
A money transfer credit card allows you to borrow money from your credit card and transfer it to your bank account. It is effectively a short-term loan alternative. The fees are usually higher than a balance transfer card. It can cost you between 3 – 4% of the amount you’re transferring.
What to remember with a balance transfer card
- Do not miss repayments on your card. Your credit card provider can stop the introductory offer if you miss a payment.
- Check your eligibility for a new card. Depending on your financial situation, lenders might not approve your credit card application.
- Do not buy anything on your balance transfer card. You’ll pay interest on anything you buy on your new card, and the rates can be very high.
- Balance transfer fees. Include the balance transfer fees when working out how much you need to repay and how much you’ll save by transferring the balance.
- Clear the balance within the 0% interest offer Make the most of the introductory period by transferring and clearing your balance before it ends.
