What is a balance transfer and how does it work?

Here’s all you need to know about balance transfers – what they are, how they work and how they could help you pay off your credit card debt.

Here’s all you need to know about balance transfers – what they are, how they work and how they could help you pay off your credit card debt.

Rob Silvey
Finances expert
5
minute read
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Posted 12 APRIL 2022

What is a balance transfer? 

A balance transfer is simply when you move your credit card balance to another card that charges less interest.

How does a balance transfer work? 

Used properly, balance transfers can help you pay off your credit card debt more easily. By transferring your balance to a new, zero-interest card, you won’t have to make hefty interest payments – you can just pay back the money you owe.

What are the benefits of balance transfers? 

Balance transfers can be a good way to avoid high interest rates. When the interest rates on one credit card kick in, you simply move your balance across to another. 

Many credit cards offer interest-free rates to attract your custom. These 0% interest offers can last as long as 24 months or more. The downside is that when the interest rate eventually kicks in, it can be scarily high. That’s when it could be a good idea to switch your balance again – ideally to another interest-free credit card.

You might also come across credit cards that offer you extra benefits, such as cashback or air miles. By making a balance transfer, you could switch to one of these types of cards and receive the rewards.

What should I consider before completing a balance transfer? 

If you’re thinking about making a balance transfer on your credit card, here are some things to think about: 

  • Are there any fees? 
    Transferring your balance may not be worth your while if you have to pay a large fee to do it. You might find a card that offers cashback, which could be more than the fee, so you won’t necessarily lose money when you transfer your debt. 
  • Are there any time limits? 
    Be aware of any time limits. You typically have 60 days to transfer a balance to a new card, but it can sometimes be 30 days.
  • How long does the interest-free offer last? 
    Will you be able to pay off your balance during that time? If you fall behind on your payments, you may find you’re heavily penalised. 
  • What are the terms and conditions? 
    As with any financial contract, make sure you read the small print carefully. Some cards offer attractive rates to get you on board, but what happens if you breach the agreement? If you miss payments or make late payments, you could find yourself stung for large penalty fees and you might lose your 0% deal altogether. 
  • What’s the credit limit? 
    You’re usually only allowed to transfer up to 90% of your credit limit. In other words, if the credit limit is £2,000, you’ll only be able to transfer £1,800. 
  •  Is your existing card in the same banking group as the new one? 
    Some brands won't let you transfer balances within the same banking group (Lloyds to Halifax, for example).

What types of balance transfer are there? 

There’s a few types of balance transfer available: 

Long zero-interest balance transfers
These give you a good stretch of time before you have to pay any interest, giving you longer to pay back what you owe. The downside? They often come with a higher transfer fee. 

Short zero-interest balance transfers 
These give you a shorter period with no interest to pay, but may allow you to pay off your debt faster if you can afford higher monthly payments. And on the plus side, they’ll usually charge a lower transfer fee or none at all.

How do I make a balance transfer? 

Want to make a balance transfer on your credit card? Here’s how to go about it: 

How to get the most out of a balance transfer 

Balance transfers can also be useful if you have lots of credit cards and want to consolidate the debt onto one card. Doing this could make your finances easier to manage. 

It does have disadvantages, however, in that it could also increase your credit utilisation rate (this is the term used to describe how much of the credit available to you that you’re using). This is something lenders tend not to like. 

Here’s a few tips for making the most of your balance transfer: 

  • Make all your payments on time
  • Stay well within your credit limit (as close to 25% of it as you can)
  • Pay off your balance within the interest-free period
  • Avoid using the card you transferred the balance from, as you don’t want to build up another debt.

What’s a credit utilisation rate? 

Credit utilisation is a term that lenders use to describe how much of your credit limit you use. If your credit card has a limit of £2,000 but your balance is £1,000, your credit utilisation is 50%. In an ideal world, you should try to keep yours at around 25%.

Do balance transfers affect your credit score? 

Any change in your financial situation will impact your credit score. The question is how much and for how long. Don’t apply for lots of balance transfer cards at once, as lenders may assume you’re struggling financially. And if you’re refused a credit card, wait a few months before applying for another one. This will give your credit rating a chance to increase again. 

You can use our credit card eligibility checker to see what balance transfer cards you’re likely to be accepted for, without damaging your credit score.

Frequently asked questions

Will I be charged a fee if I make a balance transfer?

It depends on the credit card. Some may charge a one-off fee of roughly 3-5% of your balance. However, some providers may waive this fee to encourage you to make the transfer.

How long can I go without paying interest?

Different cards offer different terms and conditions, but you could find that some credit cards let you go as long as two years, or more, without having to pay interest.

What happens when my 0% APR offer ends?

APR shows the total cost of borrowing money over a year, including the interest you’ll pay. Once your 0% APR offer ends, it’s likely that you’ll move to a very high interest rate. That’s why it’s important to try to pay off your debt before the offer ends.

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