Credit Cards

What Are Balance Transfer Credit Cards? Everything You Need to Know

Pinterest LinkedIn Tumblr

Balance transfer cards are one of the many tools available to help you tackle your debt.

Knowing the ins and outs of balance transfer cards can give you more options for prudently managing the money that you owe. However, it is vital that you understand how they work in order to use them effectively, since mismanagement of the account or failure to read the fine print can turn your finances into headaches.

Balance transfer cards have plenty of benefits and drawbacks, so it is up to you to know whether they will help ease your financial burdens or if they are better avoided.

What Are Balance Transfer Cards?

A balance transfer is when some or all of a credit card balance (or even multiple balances) is transferred into a new credit card account.

Essentially, the balance of your old credit card account is paid in full by the transfer provider. In exchange, you will pay the transfer provider the sum of money it has paid on your behalf.

Some balance transfer providers also allow you to use their cards for other kinds of debt, but that depends completely on their policy.

Most providers intend for their services to be used exclusively for credit card debt. Many offer a variety of incentives on balance transfers, which is why it is a valuable use of your time to compare providers before making your choice.

Compare Balance Transfer Cards

Card Options

Compare Balance Transfer Credit Cards Here

Read Also

What Are the Benefits and Drawbacks?

Balance transfer cards allow you to deal with your debt with low or even 0 per cent interest, which means you can combine multiple credit card debts into one amount, simplifying your payments.

Providers heavily advertise this as one of the main benefits of opening a balance transfer card. Having one monthly installment can relieve you of keeping track of various debtors, debt sums, and repayment dates, helping you avoid late fees or other penalties.

Many people find it much easier to pay one debtor than to keep tabs on multiple accounts and find this sort of repayment plan a big source of stress relief.

Save on Interest Fees

The main benefit of a balance transfer card is obvious: It allows you the opportunity to finish paying your debts without the accompanying interest you would be charged by your credit card, potentially saving you vast amounts of money over the life of your debt.

Providers can do this by paying the debt on your behalf and then taking it over themselves. They incentivise the process by making special offers and discounts available. Most balance transfer cards charge 0 per cent interest, and almost any that do charge interest maintain extremely low rates.

Compared to some of the high APRs in the credit card market, this could make for enormous savings in the long term. This makes balance transfers a kind of 0 per cent interest loan, assuming you pay down your debt on time and do not violate any of the terms set by the provider.

Do bear in mind, though, that the 0 per cent interest you see advertised will only last for so long. Even if you maintain good standing with your provider, those rates will not be permanent. You may be able to secure 20 or even 40 months of 0 per cent interest on your payments, but when that rate expires, it is likely that you will be charged a hefty additional sum each month over the principal balance.

To avoid losing even more money to skyrocketing interest rates, make sure it is realistic for you to eliminate your debt before the expiration of the 0 per cent interest on the life of the balance transfer.

Balance Transfer Cards

Transferring Balances Over

In addition to this, there are always credit limits on balance transfer cards. Most providers will only allow you to transfer over the majority of that limit, usually 90 to 95 per cent.

Make sure that the balance transfer you are considering will take on the entirety of your debt, or it may not be as simplifying as you think. In addition, most providers will require you to transfer this amount of the limit, lest your debt stretch to the point where you cannot pay it off.

Another crucial factor to remember is that you may not end up with the interest rate you see advertised. If a provider advertises zero interest “up to 40 months,” that may not necessarily mean the time you will receive. Rather, that is the best offer the provider is willing to give.

Different people will be offered different rates, and that depends on your eligibility. You simply will not know what you will be offered until you apply.

Whatever options of 0 per cent interest your provider offers you, it is almost definitely best to pick the longest one available. It is better to allow yourself more time than you think necessary to pay down a debt rather than overestimate your finances and end up paying interest fees after the 0 per cent period ends.

If you do opt for a shorter interest-free period, be certain that you can eliminate your debt before it expires.

Check Terms & Conditions

It is important to know the terms and conditions that come with a balance transfer card. If you do not keep up with these terms, such as minimum payments, you may quite possibly invalidate your zero-interest agreement and end up paying a significant additional fee each month.

It is vital that you check these terms to ensure they make sense for you. If added charges mean you will not save money in comparison to paying down your credit card debt or if they will significantly decrease your savings, it may be better not to opt for a balance transfer card.

Balance transfer providers tend to make their money on the initial transfer charges. After all, if you pay back your debt with 0 per cent interest, they will only break even instead of making a profit.

These initial charges can be anywhere up to 3 per cent of the total sum you want to transfer. Depending on the amount of accumulated debt you wish to move or combine, 3 per cent may not be a small sum of money.

Again, make sure that what you pay in opening charges will not ruin the potential savings in making the transfer. Additionally, while some providers offer a lower transfer fee, this will most likely go hand in hand with a shorter 0 per cent interest period or a higher interest rate after the period has ended.

You should also be cautious about using balance transfer cards to make new purchases. Usually, 0 per cent interest rates only apply to balances that you actually transfer over to your card.

This means that the transfer card’s normal interest rate (what you will be charged after the 0 per cent interest period expires) will be applicable to any new purchases. Balance transfer cards are intended to be used to transfer balances and manage debt, not accrue more.

Even if a provider offers a special rate on new purchases, it is quite possible that it will not be for the same length of time as the principal balance transfer, and the rate may not be as good in the first place.

Cash Withdrawals

The same goes for withdrawing cash from the credit limit on a transfer balance card, such as from a cash machine. It is fairly common for cash withdrawals to come with hefty fees.

Additionally, you will almost definitely be charged a high interest rate, as 0 per cent interest periods do not apply to withdrawals. In some cases, withdrawing cash may even invalidate the remainder of your 0 per cent interest period.

With cash withdrawals, as with purchases, it is important to bear firmly in mind that balance transfer cards are for paying down debt and not for spending. Using a transfer card for new purchases and accruing more debt is a quick way for your debt to grow to an unmanageable size.

How Do Credit Scores Come into Play?

A good credit score is extremely helpful when applying for balance transfer cards. Providers check your credit when you apply, just like any other financial service.

That means that the better your score, the better your odds of getting a balance transfer card in the first place. Your credit score will also determine just how good a deal a provider is willing to offer you on the life of your debt, which can make a substantial difference to the prudence and feasibility of transferring your balance.

If your credit is not good, you will probably be offered a much shorter 0 per cent interest period.

Similarly, the better your credit score, the more likely it is that a provider will be willing to offer you longer 0 per cent interest periods, higher credit limits, and even significantly better interest rates. You should bear all these things in mind when applying for a balance transfer card.

If your credit score does not meet the requirements of the best deals you see advertised by your provider, these are simply deals you will not be offered. Zero per cent interest periods are often offered only to those with good credit history. That does not mean that you cannot get a low-interest rate, but it is good to keep in mind as you go through the application process.

Working to improve your credit score is always sound financial advice, and balance transfer cards are no different: The better your score, the better the offers your providers will be willing to give.

If your credit score is too low to qualify for a balance transfer card, that does not necessarily mean that you are stuck with your debt as it currently stands. There are still other options that can help you tackle your debt in a manageable and affordable way.

One choice is to transfer your debts onto one of your existing credit cards, a service some providers will offer in exchange for a lower overall interest rate.

This makes sense for many providers since it means they will make more money over the life of your debt, and it may be a simpler and cheaper option for you, as well.

How to Get Your Credit Score to 800

Read: How to Get Your Credit Score to 800 or Higher: Complete Guide

What Are the Options for Those Who Don’t Qualify?

If you do not qualify for a balance transfer card because of your credit history or if you decide you prefer other ways of managing your debt, there are more options available.

You might consider snowballing your debts. This means making the minimum payment on each individual debt and focusing most of your energy on paying down one at a time. This could be the debt with the highest per cent interest rate or the smallest principal balance.

As you continue to make payments each month, your interest rate will be applied to a smaller balance, which means that you will pay less and less over the life of the debt.

Additionally, if you can secure a lower interest rate from your credit card provider in exchange for agreeing to higher payments, the process will be even faster.

A qualified financial adviser will be able to provide a lot of insight into your specific financial situation and let you know which repayment option will be most beneficial.

It is always a clever idea to contact a professional before making any big or long-term financial decisions. When debt is involved, it often can be difficult to see all the facets of the big picture or think about how things will be handled through the whole life of your debt.

Having a qualified expert help you examine all the possibilities is a valuable opportunity to figure out which plan will help you pay your debts without being unduly burdened in the process.

Fortunately, with the options available to you, debt does not have to become an issue that seriously harms your finances in the long term.

Find the Best Balance Transfer Card

Card Options

Compare Balance Transfer Credit Cards Here


Oliver Dale is Editor-in-Chief of MoneyCheck and founder of Kooc Media Ltd, A UK-Based Online Publishing company. A Technology Entrepreneur with over 15 years of professional experience in Investing and UK Business.His writing has been quoted by Nasdaq, Dow Jones, Investopedia, The New Yorker, Forbes, Techcrunch & More.He built Money Check to bring the highest level of education about personal finance to the general public with clear and unbiased