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.