What is a balance transfer and how does it work?

What is a balance transfer?

A balance transfer is when you move your credit card balance to another card with a different provider that you don’t hold other cards with.

The new card usually charges less or even no interest for a set time. This can give you some breathing space to clear your balance. Bear in mind you’ll usually pay a fee of 2-4% to do the transfer, though.

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 or low-interest card, you can escape high interest payments and just pay back the money you owe.

You can transfer balances from multiple credit cards to a single balance transfer card, which can be a useful way of consolidating your debt and making it easier to manage.

Here’s an example of how a balance transfer works in a nutshell:

• Let’s say you’ve got a hefty credit card balance with a high interest rate.

• You find a balance transfer card from a different provider offering 0% interest for a year. Dividing the outstanding debt over 12 months gives the monthly payment needed to clear the balance, which is an affordable amount for you to pay.

• For a set fee you transfer the balance from your old card to the new card and, for those 12 months, you don’t pay any interest.

• By the end of the 12-month period, you’ve cleared your debt and have avoided interest charges.

See some of our best balance transfer cards.

What are the benefits of balance transfers?

Balance transfers can be super handy if you’re looking to save some cash on your credit card debt by avoiding high interest rates. When the interest on one credit card kicks in, you simply move your balance across to another.

• Many credit cards offer interest-free rates to entice you over. These 0% interest offers can last a pretty long time – sometimes up to 30 months or more.

• You can usually transfer balances from multiple credit cards onto a single balance transfer card. Consolidating your debt (in other words, bringing it all into one place).

• You might also come across credit cards that offer you extra benefits, such as cashback or 0% interest on purchases – it’s like getting a little something extra for being smarter with your money.

What should I consider before completing a balance transfer?

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

Can you keep up with the repayments?

It’s understandable to be excited at the thought of not paying interest for a while. But if you’re not able to meet your monthly minimum repayments at the very least, you could end up in a sticky situation.

Penalties for missing a minimum payment could include late payment fees, losing your promotional rate, and damaging your credit score.

Are there any fees?

Balance transfers often come with a fee that’s a set percentage of the amount you’re transferring – typically around 2-4%. It’s worth checking if the card you’re looking at offers cashback or rewards that could offset the fee, so you’re not losing out.

You’ll typically find that, the longer the interest-free period, the higher the transfer fee – though this isn’t always the case.

Bear in mind that, if the fee outweighs any interest savings or cashback, it might not make sense to go ahead with the transfer.

Are there any time limits on moving across the balance?

Most cards give you a window of time in which you have to move over your balance – typically around 60 days, but sometimes just 30. If you miss the deadline, you might end up paying interest right away.

How long does the promotional 0% or low-interest rate last?

Will you be able to pay off your balance during that time? If not, you’ll be moved onto the lender’s standard rate at the end of the promotional period, which can be scarily high. At this point, if you haven’t managed to fully clear the balance, it could be a good idea to transfer your balance again – ideally to another interest-free credit card – if you’re able to get accepted by another lender.

What are the terms and conditions?

No matter what, always read the small print carefully. Some cards offer great deals to hook you in. But if you miss or make late payments, you could find yourself stung for large penalty fees and might lose your 0% deal altogether. Knowing the full terms will help you avoid any nasty surprises.

What’s the credit limit?

You’re usually only allowed to transfer up to 90% of the credit limit on the new card. For example, if the credit limit on your new card is £2,000, you’ll only be able to transfer £1,800.

Some lenders may give you an idea of the credit limit you could be offered when you go through their soft search eligibility checker. But as a general rule, you won’t know your exact credit limit until you apply.

Is your existing card provided by a member of the same banking group as the new one?

In general, you can’t transfer a balance between two cards issued by the same provider, or from another provider in the same banking group. So if you’re trying to transfer your balance from, say, a Lloyds card to a Halifax card, it won’t work, as they’re part of the same group.

How do I make a balance transfer?

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

1. Choose a balance transfer card that works for your needs – our credit card eligibility checker will show you the cards you’re likely to be accepted for so you can compare without damaging your credit score

2. Apply for the card

3. If you’re accepted, once the new card is live contact your old credit card provider to request a balance transfer

4. Start clearing the balance and aim to pay it off before the end of your promotional interest rate period.

How long does a balance transfer take?

Once you’ve requested the balance transfer, it usually takes a couple of days to go through. But if there are any extra checks or the request falls on a weekend or bank holiday, it might take up to a week.

To make sure everything goes as smoothly as possible, double-check you’ve got all the right info when you start the transfer – for example, the number of the credit card you're paying off and the amount you want to move to the new card.

Transferring balances from multiple cards

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

But there’s a potential catch. If you close your old cards and they had a combined credit limit higher than the one on your new balance transfer card, it will push up your credit utilisation rate (basically, how much of your available credit you’re using). This can impact your credit score and could reduce your chances of being accepted for future credit applications.

Will taking out a balance transfer credit card affect your credit score?

The short answer is yes: applying for any credit card affects your credit score, and balance transfer cards are no exception. With that in mind:

• Don’t apply for lots of balance transfer cards at once, as lenders may assume you’re struggling financially

• If you’re refused a credit card, it may be sensible to wait a few months before applying for another one. This will give your credit rating some time to bounce back.

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

How to get the most out of a balance transfer card

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

• Always make at least the minimum repayment on time

• While it may not always be possible, especially for hefty balance transfers, it’s best not to go above 30% of your credit limit

• Aim to pay off your entire balance within the interest-free or low-interest period – if you don’t manage to, investigate whether you can shift the debt to another balance transfer card before interest kicks in

• Avoid putting new spending on the card you transferred the balance from if you don’t want to build up new debt.

Check out our guide if you need tips on how to pay off your credit card.