0% Balance Transfer Credit Cards

Balance transfer credit cards

Balance transfers allow credit card holders to transfer the debt they owe on one card onto another. This is usually done because the new or receiving card offers a better interest rate. In the case of 0% balance transfer cards, they do not charge any interest at all on the transferred balance for a given period of time.

What are balance transfer credit cards?

Balance transfer credit cards are actually normal credit cards. They follow the same rules and can be used for all the same things – for accessing credit and making purchases in person, online, over the phone or via mail order. Most credit cards can be used to make balance transfers but when people refer to balance transfer credit cards they generally mean cards that have a lower than usual balance transfer rate. This may be 0% or it may be be 1%, 1.5% or some other rate that is lower than average. This low balance transfer rate is often seen as the main benefit of a particular balance transfer credit card.

How do they work?

Credit cards work by allowing you access to a pre-agreed line of credit. In essence you are borrowing money every time you make a payment using your card. There is a limit to how much money you can access and borrow with your card. This is known as your credit limit and can vary depending on a number of factors including the type of card and your own circumstances and credit history. Most credit cards have an interest-free period for purchases, which is typically one month. This means that, as long as you pay off your balance on or before the date specified in your monthly statement, you will not usually have to pay any interest or fees for using your credit card.

If you do not wish to or cannot pay the balance in full by the due date you will be charged interest on whatever money you owe. Even if you cannot pay the balance in full you should always pay the minimum amount due, otherwise you may face additional penalties and your credit rating may be affected.

If you do have an outstanding balance, you can use a balance transfer to effectively pay off your balance on an existing card with a different credit card. The money you owe is transferred to the new or receiving credit card account.

What are the benefits?

The benefit of making a balance transfer to a balance transfer credit card is that the rate of interest you pay will be lower. In the case of 0% balance transfer cards, you will not usually be charged any interest at all on the balance that you transfer for the length of the promotional period.

Most promotional or introductory rates only stay in effect for a given and agreed period of time. This could be 9 months, a year, 18 months or even longer. If the balance has not been paid off by the end of this time the interest charged on what remains will revert to the card's standard rate. Some balance transfer cards offer a balance transfer rate that applies for the life of the balance (i.e. until it is completely paid off) but these rates are rarely if ever 0%.

If you only transferred a balance of £100 you would be charged £10, because the minimum fee is higher than 3% of £100. Your new balance would be £110.

When you compare balance transfer credit cards you should balance any fee to be paid against the length of the 0% period or the promotional balance transfer rate. Depending on the amount to be transferred and how soon you can reasonably expect to pay off the balance, a card with a lower fee and a shorter promotional period or higher balance transfer rate may work out cheaper than a card with a higher fee and a longer promotional period or lower balance transfer rate. The opposite could also be true, depending on your circumstances.

How much can I transfer?

Like all credit cards, balance transfer cards will have a credit limit. You cannot transfer a balance that is greater than this amount and some card providers may also stipulate that you can only transfer a certain amount, such as 90% of the credit limit. You should also take any fees into account. If you are transferring to a card with a credit limit of £1,000 and there was a fee of 3% you couldn't transfer a full £1,000 as the 3% or £30 fee would take you above your credit limit.

Are there any potential problems?

As with any credit card, you should always read your Terms & Conditions. If you miss a payment for example, you may trigger a clause that invalidates your promotional balance transfer rate and causes the card to revert to the standard interest rate. It is usually worth setting up a Direct Debit to make at least your minimum payment each month so you never miss a payment by mistake.

It's also worth noting that where you have various balances with different interest rates on the same credit card account, the lowest is usually paid off first. If you transfer a balance to a 0% balance transfer card and subsequently make purchases with the card, the money spent on those purchases is likely to be charged at the card's standard rate. Any payments you make will be taken off the transferred or 0% balance first. Meanwhile, the other part of your balance will be racking up interest. Some cards offer 0% on both balance transfers and purchases but the 0% on purchases may last for a shorter period before reverting to a standard rate.