A simples guide

What is a balance transfer

You might have seen or heard the term balance transfer used in credit card advertising and wondered what it was. A balance transfer is where you move your credit card debt from one card to another. This is usually done to a new card offering low or even 0% interest, helping to save potentially big money.

How do balance transfers work?

Let’s assume you have a standard credit card. You’ve build up £5,000 of debt on it over a period of time. You’re currently paying standard interest on it at 18%.

You need to find a credit card that specifically offers balance transfers. When you’ve found one, and the card is set up, you use it to pay off the debt on your old card. It’s that simple.

Some cards offer up to 40 months at 0%, allowing you to pay off your old debt interest free over a lengthy period, assuming you make your minimum monthly payment.

There is however, a transfer fee to be paid. These cards usually charge a fee of anywhere between 2 and 3% of the balance being transferred.

Even taking this into account, if you transferred your £5,000 of debt across to a 0% card, you could save over £1,500 of interest payments over the 40 months. That’s a saving not to be ignored.

Nowadays, there are a number of credit card companies offering 0% balance transfers and 0% on new purchases on the same card. On these cards, the 0% balance transfer period tends to be shorter - up to 24 months, but it can also be used for 0% purchases for up to two years too.

Remember if you carry out a balance transfer you must meet the monthly repayments on time or you could lose the interest free period. You need to ensure that the debt is cleared by the end of the period otherwise it will convert back to a standard rate and you could be left paying the interest again.


credit card
credit card

When is a balance transfer a good idea?

A balance transfer could be a good idea at any time that you have other credit cards incurring relatively high interest charges. It can then be used to pay off this debt much more cheaply.

If you have debt spread across a number of cards, it might also make sense to consolidate your debt into one place so that you only have one repayment each month to worry about.

How does a balance transfer affect your credit score?


The answer to this is rather unhelpful - ‘it depends!’ Your credit score is produced from a number of different factors, transferring your credit card balance from one card to another is just one of them.

When you apply for and obtain a new card to facilitate the balance transfer, you might see your credit rating take a temporary dip as you’ve taken on a new credit account.

The good news is that this could be short lived. In the longer term, paying off that debt on time could well improve your credit history.

As we said, it depends!

Could a new card application be rejected?

If we assume you’re taking out a new card to facilitate the balance transfer, then yes, it could be rejected.

As with any other credit application, the credit card company will look at your credit score. Many credit card companies have strict criteria when assessing applicants for balance transfers. This is particularly the case where 0% interest for long periods is offered.

If your credit score is not great you may find that you’re turned down on the best deals. Be wary of applying in a situation where you know you’ll be declined, being turned down for credit also has a negative impact on your score too. This could potentially make a bad situation even worse.

Now you’re here why not visit our dedicated comparison page and take a look at the 0% balance transfer deals available.

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