Balance transfer credit cards are amongst the most popular products available in the UK because they help us reduce interest payments on existing debts.
Balance transfer cards allow you to transfer your credit card debts, which you could be paying a high rate of interest on, to a new credit card offering 0% interest for a set period. In most cases, you'll need to pay a balance transfer fee for doing this (generally a percentage of the balance transferred), but by reducing the amount of interest you pay, you'll be able to pay off your debt quicker and save money.
Well, that depends on your circumstances. Every card issuer (and every product) has different eligibility criteria. However, there are some rules of thumb.
There are loads of balance transfer products to choose from, and they're all different*. Some have lengthy 0% periods, some have low transfer fees, whilst others offer 0% on purchases as well as balance transfers.
So what is 'best'?
Well, that depends on your circumstances - past, present and future. How much do you need to transfer? How long to you need to pay it off? Are you likely to need the flexibility to buy things with your card too?
Firstly, work out how long you will need to pay off your credit card with your available finances, as this will affect the cards you should be looking at. If, for example, you've got £2000 to transfer, and you plan to pay off £100 per month, you're not going to need a balance transfer card offering 0% for as long as 3 years. Such a card will probably charge a comparatively high transfer fee, so instead you should look for cards offering just 20 months, which are often available with no transfer fee to pay at all. If you cannot afford £100 every month, but only have £50 to pay off your £2,000 balance, you'll probably need a card offering 40 months or more. Remember that the transfer fee will increase your total balance by around 3%, therefore you will need to consider this when working out how long you need to pay off a debt.
Of course, if you need to spend on your credit card too, that will be an additional consideration. How much do you need to spend and can you pay it off every month? Is a combined transfer and purchase card the best route, or should you try to get two different cards? - one for transferring your balance, and one for new purchases?
Balancing these considerations, while retaining flexibility for any potential changes to your circumstances, means there's no way of knowing if you have applied for the best balance transfer card until a long time after the event. However, that doesn't mean you should delay switching. The chances are that, if you're paying interest on your balance and you're unlikely to pay it back soon, using a balance transfer card will save you money.
*Some peripheral balance transfer cards are effectively clones of each other with different branding, but these tend to be less popular loyalty based products (eg. Football, Charity, Rugby club cards).
If there's one thing that is striking about balance transfers, it is just how cheap it is to borrow with them. Standard credit card interest rates can be around 20% per year, whereas a balance transfer card might offer you over 3 years without interest for a comparatively low one-off fee. Even with interest rates at historic lows, at 0% there is little scope for card issuers to make money (especially when account servicing and infrastructure costs are considered). So, how do card issuers make money on balance transfers?
If you use your card sensibly, there's a good chance that your card issuer will lose money on your business! However, (and it is a very big and important 'however'), many people don't use their balance transfer cards well:
So, how do you ensure you use your card well?
Some issuers offer an online interface which you can use to arrange your transfer. If not, or if you don’t like the idea of using the internet, you can phone your issuer and they will be able to process your transfer.
Transfers can take a few days to process, but remember that your balance transfer period (whatever that might be) will start from the moment you open your account – not when you get your card, not when you activate it, and not when you process the transfer.
Remember to factor this in if you don’t expect to clear your balance before your introductory offer expires, so you can get a new card with around a month to spare.
In a nutshell, you can’t. You could ask your card issuer for your limit to be increased, but, since your credit limit was decided upon using all the information they had on you, it is unlikely to be increased.
If you are unable to increase your credit limit, you should transfer what you can, to avoid interest on the maximum amount. You should also be aware that you’ll probably be able to make balance transfers for the first 3 months from the date your account was opened. So, even if you can’t transfer all of your high-interest balance straight away, you should be able to arrange an additional transfer to make full use of your entire credit limit after you have made your first couple of monthly payments.
No. The fee is added to your balance. If this means that you’ll exceed your credit limit, then you won’t be able to transfer your entire balance. Remember this if you request a particular credit limit – you need to leave some of your available balance for the transfer fee.
Yes, as long as you don’t exceed your credit limit.
Yes and no. You can’t balance transfer to your current account per se, but some balance transfer cards do offer “Money transfers”. Money transfers enable you to move cash straight into your bank account, which you can then withdraw as cash.
Just remember that Money transfers usually incur a higher fee than a standard balance transfers.
No, but you could use a Money transfer card to transfer cash straight into your bank account, which you can then use to pay off your loan.
Given that Money transferring incurs a one-off fee for fixing the debt at 0% for a particular period, this can still work out cheaper than a loan. However, if you misuse your card, you may find you’re paying more interest on your credit card than you would have with the original loan.
Yes. So long as your card uses Visa, Mastercard or Amex, you should be able to transfer your store card debt in the same way you would a standard credit card.
Yes – As long as you have their account details. However, you should remember that their debts will then become yours. If they are not paid, it is you that the card issuer will pursue repayment from, regardless of any personal arrangement you may have with the person whose debts they were originally.
Not at the moment. They once were, but they have been phased out.
Yes. So long as you get accepted. That said, the fact that you already have a 0% transfer card may restrict your ability to get another, since lenders need to ensure you are not over indebted.
It really depends on your circumstances and the amounts involved. If you are in any doubt whatsoever, you should read our debt guide and/or speak to a debt counsellor. Your debts might not be as serious as you think, but, if they are, you should get help at the earliest possible opportunity.
Many people get into debt problems for all kinds of reasons, and it can seriously affect your health. So don’t muck about, life is too precious, get help if you have the slightest inkling that you need it.
Maybe, but not immediately. Credit applications are recorded in your credit file, and multiple applications in quick succession may suggest to credit card issuers that you are in financial destress. Also, card issuers can ‘herd’. If an issuer has seen that you have been declined elsewhere, even if they would have been prepared to offer you credit, they may assume that another issuer who declined you had a piece of the picture that they didn’t – so they decline you to err on the side of caution.
First, you need to understand why you were rejected in the first place. Have a look at your credit reports, and check them for mistakes or things that might cause a lender to be wary.
If you’re still unsure, use a smart search tool to get an indication as to the products you might be eligible for before you apply.