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Everything you need to know about balance transfer cards

Balance transfers cards are useful tools to help you manage your existing card debts, and if you use a 0% balance transfer card wisely you can dramatically cut the cost of your borrowing.

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If you think you might benefit from a balance transfer card, but have a few questions this guide should be able to help.

Credit card basics

To the uninitiated credit cards can seem confusing, but credit cards are quite simple and nothing to be afraid of once you understand the basics.

What is interest?

Interest is the price of borrowing, with any credit product it is expressed as an annual percentage rate (or APR for short) which shows how much borrowing will cost you over the course of a year.

For example, borrowing £100 at 20% APR would cost you £20 over the course of a year. If you want to work out how much your credit card will cost you on a monthly basis simply divide the APR by 12.

So a balance of £100 on a card with 20% APR would cost you around 1.67% (£1.67 as cash) each month.

As interest is usually compounding (meaning you pay interest on debt added from interest charges), interest charges can quickly build up if you don’t stay on top of your repayments.

Typically you have 56 days before interest is charged on any new purchases made with a credit card, so with most cards you should aim to repay the balance in full before this time elapses, but some cards have 0% interest offers which give you longer a time to repay without facing interest.

What is a credit card balance?

A balance on a credit card simply refers to the debt held on it. For example, a balance of £500 on a credit card would mean there is £500 outstanding to be repaid.

Credit card balances are always negative, or at zero (it’s generally not possible to have a positive balance on a credit card), so a credit card balance always refers to money owed, unlike with a current account or bank balance.

How do repayments work with credit cards?

Credit card repayments are flexible (unlike loan repayments, for example) and you can repay more or less of your balance at your discretion. But, all credit cards have a minimum monthly repayment, that you must meet or face late payment charges and default fees.

Lenders are required to clearly display a credit card’s minimum monthly repayment on its summary box (along with all other fees and charges). Depending on the card, the minimum repayment is typically the greater of:

  • around £5-£25
  • around 1-5% of the total balance owed

It’s worth noting that if you only make minimum repayments, it will take longer to repay your balance and your card will end up costing you more.

What is a balance transfer card?

A balance transfer card is a name for credit card that specialises in holding balances transferred from another credit card.

Most credit cards will let you transfer a balance to them, but not all credit cards specialise in balance transfers.

How does a balance transfer work?

First you need to choose and apply for a balance transfer credit card. If you are concerned about which balances transfer card you can get you can check your eligibility for credit cards, or check your credit score before applying.

Once you have the card you can start transferring balances. You can do this either online, over the phone or at your bank branch.

However, you don’t actually move debt from one card to another. In fact it’s the opposite, you move credit. So your balance transfer card will go into a negative balance as you move credit to pay off debts on your existing card.

You will then need to repay the debt held on your balance transfer card.

Can I transfer a balance from any card?

Usually you cannot transfer balances between credit cards from the same provider, also note that you can only transfer balances between credit cards. If you want to transfer a balance to a debit card, you need a money transfer card.

What is a 0% interest period?

A 0% interest period is an introductory offer included with many cards where you will pay no interest on your credit card debts for a fixed period of time.

Interest free periods are measured in months and can be anywhere between three months at the shortest and 41 months at the longest.

There are three different types of 0% interest offer:

  • Balance transfer – no interest on balances transferred between credit cards
  • Money transfer – no interest charged on transferring credit into a current account to use as money
  • Purchases – no interest is charged on new purchases made with the card

Is the longest 0% period the best?

While avoiding paying interest for as long as possible is a good idea, choosing a balance transfer credit card with the longest 0% interest period isn’t necessarily the best choice.

Generally as a rule, the longer the 0% interest balance transfer period, the higher the transfer fee will be.

Often card providers will extend their 0% period by an arbitrary amount (ie one month) in order to claim they offer the longest or ‘market leading’ balance transfer card.

But you should make sure this extra time avoiding no interest is realistically worth paying any transfer fees when compared to cards with shorter 0% offers and lower fees.

What is the transfer fee?

The transfer fee is the money you will need to pay to be able transfer credit balances between cards.

It is almost always a percentage of the total value of the transfer and is usually no more than 3%.

While you need to pay the fee ‘upfront’ it’s likely it will just be added to the balance of the card and you can repay it gradually along with the rest of the balance.

Initial fee

The initial, upfront or full-price fee is the fee you will need to pay upfront to make a transfer. This may be the end of it, but you may get some of the fee refunded at a later date.

Effective fee

The effective fee is the fee you should actually end up paying, normally after getting a refund. However, with some cards there are requirements you’ll need to meet to be eligible for the effective fee.

Typically you will pay a ‘full’ initial fee upfront to make the transfer and then you will get a refund for ‘good behaviour’ (ie meeting all your repayments) that will bring your fee down to the effective fee.

Are there fee-free 0% balance transfer cards?

You can get balance transfer cards that have both a 0% interest period and no transfer fee. While they do not typically have the longest 0% periods, these cards could effectively enable you to borrow for free if you can repay the balance before the 0% period expires.

How do repayments work with a balance transfer card?

If you want to keep your 0% interest offer you need to meet at least your minimum monthly repayments, as the offer can be withdrawn if you frequently miss these payments.

As a rule, it’s worth aiming to repay your balance in full before the 0% offer period comes to an end. This will enable you to effectively borrow for free and avoid paying any interest.

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Compare balance transfer credit cards

Find a balance transfer credit card and stop paying expensive interest payments on your balance.

Compare credit cards