A balance transfer credit card is designed to help you manage existing credit card debt more effectively. It allows you to transfer your high-interest credit card balances to a new card that offers a 0% interest rate during an introductory period, which can last up to 12 months or more. For instance, if you are currently carrying £800 in debt on a card with a 15% interest rate and another £200 on a card charging 18%, transferring the total £1000 to a 0% balance transfer card could save you from accruing further interest during the introductory period. This strategic move provides a window to pay down the debt without the burden of accumulating interest, making it easier to reduce your balance more quickly.
0% Balance Transfer Fee Credit Cards
What is a Balance Transfer Credit Card?
How Do 0% Balance Transfer Cards Work?
When you're approved for a balance transfer credit card, the next step is to initiate the transfer of balances from your existing credit cards to the new one. Here's a step-by-step guide on how the process works:
Initiate the Transfer: Contact your new card provider to move your existing balances. This can usually be done online or over the phone. Balance Transfer Fee: Most balance transfers involve a fee, typically around 1-3% of the total amount transferred. This fee is added to the balance on your new card.
Transfer Limits: The amount you can transfer generally cannot exceed a certain percentage of your new credit limit, often up to 95%. For example, with a £2,000 credit limit, you might be able to transfer up to £1,900.
Repayment: Once the balance is transferred, you'll need to make at least the minimum monthly payments by the due date. To take full advantage of the interest-free period, aim to pay more than the minimum. Calculate your monthly payments by dividing the total transferred balance by the number of months in the 0% introductory period. For instance, if you transfer £1,500 and the introductory period is 15 months, you should aim to pay about £100 per month to clear the balance before interest kicks in.
Manage Your Payments: Setting up a standing order for the calculated monthly payment can help ensure you never miss a payment and stay on track to clear your balance within the interest-free period. End of the Introductory Period: Be aware that once the 0% interest period ends, any remaining balance will start accruing interest at the card's standard rate. To avoid this, consider paying off the full balance before the promotional period expires.
Further Transfers: If you still have a balance at the end of the interest-free period and you cannot pay it off in full, you might consider applying for another balance transfer card to extend the 0% interest benefit. However, aim to clear the debt as quickly as possible to avoid falling into a cycle of debt.
Do I Need to Pay a Fee for Balance Transfer Cards?
Although initially there will be no interest payments on your debt, balance transfer credit cards will often have a small fee that you will have to pay in order to transfer the balance of your other credit cards over. This fee will be in the region of two to three percent of the amount which you transfer over. For example, if you were to transfer over £1000 of credit you would likely pay roughly £20 to £30 as a fee for making the transfer. This however should not dissuade you from using a balance transfer credit card, as you will more than likely make this amount back and more by not having to pay interest on your debt for the first 12 months or so.
Who is Eligible for Balance Transfer Credit Cards?
Eligibility for balance transfer credit cards typically depends on having a good to excellent credit score, as these cards are designed for individuals who can manage credit responsibly. Applicants must also meet other criteria set by the issuer, such as minimum income levels and a stable employment history. Additionally, the amount of debt you wish to transfer and your current financial obligations will be considered to ensure you can realistically manage the repayments.
Benefits of Using a Balance Transfer Credit Card
A balance transfer credit card offers several advantages that can help you take control of your financial health more effectively:
Pay off your debts more quickly: With a 0% interest rate during the introductory period, a balance transfer credit card allows you to pay down your principal faster. This is because payments are not being eaten up by high interest charges, enabling you to reduce your overall debt more quickly.
Pay less interest: Transferring your high-interest debt to a card that offers a 0% introductory rate can lead to considerable savings on interest. While there is typically a fee involved in transferring the balances, this cost is often minor compared to the potential interest savings over time, especially if you can pay off the balance before the promotional period ends.
Improve your finances: Consolidating multiple debt sources into one card with a lower interest rate not only simplifies your payments but can also help in improving your credit utilisation ratio, a key factor in your credit score. As you decrease your debt, your credit score can improve, making you more attractive to lenders and potentially giving you access to better terms on future financial products.
The Disadvantages of a 0% Balance Transfer Credit Card
The disadvantages of using a balance transfer credit card are that there will be a transfer fee, and that the 0% interest on the credit you owe will only last for 12 months. This means that if you want to make a significant saving it is preferable that you pay off your credit within the 12 month period before the interest payments begin. Therefore, for those who are not able to cover their debt in that span of time, transfer cards are much less of an advantage for them. You should also watch out for penalty charges which you may have to pay in the event that you miss a payment or go over your credit limit. This can make using a balance transfer card risky if you don't feel that you can be reliable with your payments and your spending habits.
How to Make the Most of Your Balance Transfer Credit Card
Maximising the benefits of a balance transfer credit card can significantly help in managing and reducing your debt. Here are some strategies to ensure you make the most out of your balance transfer card:
1. Transfer Debts Promptly
The 0% interest period on your balance transfer card typically begins as soon as the card is issued. To make full use of the interest-free months, transfer your existing balances from other cards as soon as possible after receiving your new card. Delaying the transfer means less time to enjoy the zero interest benefit.
2. Make Timely Repayments
Ensure you make at least the minimum monthly payments on time. Missing a payment or paying late can result in penalty fees and might cause you to lose the 0% introductory rate, reverting to the card's standard interest rate. If possible, aim to pay more than the minimum to reduce your debt quicker.
3. Avoid New Purchases
Using your balance transfer card for new purchases or cash withdrawals is not advisable, as these transactions often incur high interest rates and additional fees, counteracting the benefit of the balance transfer. If you need to make purchases, consider a card that also offers a 0% period on new purchases, or use another card with lower charges for purchases.
4. Plan to Clear the Balance Before the Intro Period Ends
Work out a plan to fully repay the transferred balance before the end of the 0% period. Calculate how much you need to pay each month by dividing the total debt by the number of months in the interest-free period. Setting up a direct debit for this amount can help you stay on track without having to remember to make the payments manually.
5. Set Reminders for the End of the 0% Period
Mark the date when the introductory offer is set to expire in your calendar. This reminder will give you enough time to either pay off the balance or explore options like transferring any remaining debt to another balance transfer card. Staying ahead of this deadline ensures you won't be caught off-guard by sudden jumps in interest rates.
Frequently Asked Questions
Is there a balance transfer limit?
Yes, you can usually transfer up to a certain percentage of your new card’s credit limit, often up to 95%. This means if your credit limit is £2,000, you could potentially transfer up to £1,900.
Will a balance transfer credit card affect my credit rating?
Applying for a balance transfer card involves a credit check, which might slightly lower your credit score temporarily. However, if you manage the card well by reducing your overall debt and making timely payments, it can positively affect your credit score over time.
Can I make purchases with my balance transfer credit card?
While you can use the card to make purchases, it's usually advisable not to. Purchases often don't benefit from the 0% interest rate offered on the transferred balance and can accrue interest at the standard rate from the day of the transaction.
What is my credit limit?
Your credit limit is determined by the card issuer based on your creditworthiness, financial history, and other factors. You will be informed of your credit limit when you receive your card.
Can I pay more than the minimum payment?
Yes, it's encouraged to pay more than the minimum to reduce your balance quicker. This not only shortens the repayment period but also reduces the total interest paid, especially after the introductory 0% interest period ends.
What will my balance transfer fees be? Balance transfer fees typically range from 1% to 3% of the amount transferred. This fee is added to your balance, so it’s important to factor this into your repayment plan to make sure the transfer is cost-effective.
Last reviewed: 1 July 2024
Next review: 1 August 2024