Credit Cards Balance Transfer Explained

Sometimes you can find yourself with two credit cards from two lenders with different Annual Percentage Representative (APR) rates. It might be wise to take advantage of the one with the lower rate. And there comes the balance transfer.

A credit card balance transfer is a financial tool that allows you to move outstanding debt from one credit card to another, typically to take advantage of lower interest rates. Here’s how it works and what to consider:

How Balance Transfers Work

Many credit card companies offer promotional periods with 0% APR (Annual Percentage Rate) or low rates on balance transfers for a set time, typically 6-24 months. When shopping for credit cards, you can check if they offer balance transfers and what are the terms attached to that offer.

After getting approved, you request to transfer the balance from your old card(s) to the new one. The issuer pays off the old balance(s) and adds the amount to your new card. You repay the transferred balance under the terms of the new card.

What are the benefits of balance transfers?

Lower Interest Costs

It comes with low-interest costs if you use 0% or low promotional rates. You can save money if you repay the debt during the promo period.

Consolidation of Debt

It simplifies payments by combining multiple balances into one account.

Debt Payoff Opportunity

A temporary break from high interest rates can help you pay the principal faster.

You can consider taking a balance transfer credit card if you have high-interest credit card debt, you can pay off the balance during the promotional period.

Key considerations before taking a balance transfer credit card

Balance Transfer Fees: Most cards charge a fee (typically 3-5% of the amount transferred). Calculate if the savings outweigh the fee.

Promotional Period: Be aware of the duration of the low or 0% APR. Any remaining balance after the period may accrue interest at the standard rate.

Credit Limit: The amount you can transfer is usually capped at your new card's credit limit.

Impact on Credit Score:

Hard Inquiry: Applying for a new card can cause a temporary dip in your score.

Utilisation: High balances on the new card may increase your credit utilisation, affecting your score.

Minimum Payments: Meet at least the minimum payment on time to keep the promotional rate.

The customer should check if the new card he is applying for allows them to complete the balance transfer to their current credit card. This is important because if the same lender offers both credit cards under different brand names, he may not allow a balance transfer.

It is also important to note that some credit card lenders may not allow clients to transfer 100% of the money to their new credit card. Before applying for a balance transfer, the clients should read the terms and conditions of the provider.

10 Balance Transfer Cards UK