Credit card providers offer 0 per cent balance transfer deals to entice new customers. Although balance transfer deals can offer a great opportunity to repay debt cheaply, there are a number of things you must be aware of before opting for a balance transfer deal in order to make the most of the opportunity.
What is a balance transfer credit card?
A balance transfer credit card deal allows borrowers to move their credit balance to a new card and pay no interest on their debt for a set period of time following the transfer.
Credit card providers often offer an interest-free period to anyone who moves their balance across from their existing credit card. Interest-free periods have been extended over the years as the market has become more and more competitive and many providers will now charge balance transfer customers no interest on their balance, in some cases, for as long as up to 30 months. Providing you repay your balance over this period you can clear your debt very cheaply, even though most credit card providers will charge an initial balance transfer fee.
Typical features of balance transfer credit card deals:
- Interest-free periods of around 20 months to 33 months
- Initial transfer fees usually charged as a percentage of total balance
- At the end of the interest free period, the interest rate reverts to provider’s standard rate.
- If you make purchases on your card within the introductory interest-free period, you will pay interest on these transactions.
Who might need to consider a balance transfer credit card?
Anyone with an outstanding balance on credit cards or store cards that is costing them a lot in interest can benefit from transferring their balance to a provider offering an initial 0 per cent interest period on balance transfers.
What eligibility criteria do providers apply to their balance transfer offers?
This varies widely between lenders, but your credit profile will be taken into account, along with your balance amount and your financial situation.
Criteria providers look into before accepting you for a balance transfer deal:
- Your employment status
- Your income
- Your credit history
- Whether you are a homeowner
- Whether you have dependents
- Your typical outgoings
- Your balance transfer amount
Things to be aware of when taking out a balance transfer credit card offer
- Purchases are usually not included in the 0 per cent offer. The 0 per cent interest rate on balance transfers tends to only apply to the total amount you transfer to the card from your existing card(s). Any purchases you make with the card following the initial transfer will have interest charged. It can, therefore, be a good idea to keep another low-interest credit card for purchases and use your balance transfer card primarily to repay your debt cheaply.
- If you have not repaid the balance before the introductory period has expired, you could end up paying a large amount of interest on the balance. Once your introductory 0 per cent interest period is up, your deal will revert to the provider’s standard balance transfer rate, which is usually quite high. At this point, you could look to transfer the balance to another 0 per cent deal.
- You must still make the minimum monthly repayments. Although you will not be charged interest throughout the 0 per cent period, you will be expected to keep up with the minimum monthly repayments required by the provider. These repayments will all go towards repaying your debt, so it makes sense to try to repay more than the minimum amount. If you fail to make the required repayments you may incur charges and could be taken off the 0 per cent deal. Missing repayments can also damage your credit score.
- Be careful not to build up debt on your original card after you transfer. Many people transfer debt from an expensive card on to a balance transfer deal and then proceed to spend again on the expensive credit card. Although you are entitled to do this, it doesn’t make sense from a personal finance perspective and it’s far more sensible to cut up the previous card and close the account.
- Setting up a direct debit each month can help you to make minimum monthly payment. It’s easy to forget to make the minimum monthly repayments on your credit cards but setting up a direct debit can help you to remember. Providing you have money in your current account, the minimum payment - or whatever you have decided to repay over and above the minimum payment - will be taken from your account each month automatically.
Shop around to get the best balance transfer credit card deal
It’s essential to do your own research into the best balance transfer credit card deals, as the market is a competitive one and the terms can vary hugely between different credit card companies. Some balance transfer deals can be made with no initial transfer fee, but these tend to have shorter 0 per cent interest periods so you may need to research which deal will save you the most money, depending on your balance amount.