See if you could cut your interest and pay back less with a balance transfer card
Balance transfer cards typically offer a 0% interest rate for a set period, which may last up to 30 months. You may be able to reduce the amount you’re currently spending on interest by moving debts from your existing credit card(s) to a 0% balance transfer card.
A 0% balance transfer credit card can potentially help you save money. In turn, this may help you pay off your debts faster.
For example, imagine you have £1,000 of debt on a credit card with an APR (Annual Percentage Rate) of 19%. This means you’d pay £190 every year in interest. Now imagine you move this debt to a balance transfer card, which offers a 0% rate for the first 24 months. This means you wouldn’t pay interest on the debt for the next two years, saving you a total of £380 interest. You might use this money to pay off your debt quicker, before the 0% promotional period ends. However, you might be charged a transfer fee, which will take away from your savings – we’ve explained this below.
Consolidating your debt (moving debt from multiple cards to just one) can also help you see how much you owe. This can make it easier to manage your repayments.
Your credit score reflects your ability to borrow money from lenders – the higher it is, the greater your chances. Transferring a balance from one credit card to another can affect your score – but whether the effect is positive or negative depends on several factors.
Here’s how a balance transfer might lead to your score being lowered:
Here’s how a balance transfer might lead to a better credit score:
Before deciding to get a balance transfer card, weigh up the pros and cons. How much money will you save overall? Applying for new credit can cause your credit score to briefly drop – are you prepared to accept the risk of damage to your score? If you’re planning to apply for a loan or mortgage soon, a lower score could reduce your chances of approval – however, you may decide the risk is worth the money you save.
Balance transfer cards can offer attractive benefits and could help you pay off your debt faster, but you should carefully consider the conditions of the deal, and the impact on your finances. There are several key things to look out for:
When you first get a balance transfer card, you’ll normally have to pay a fee to the provider. This tends to be 2-3% of the balance you’ve transferred, but it can be higher, especially if the promotional period is quite long. Make sure you compare deals and read the terms carefully before picking a card.
If you get a balance transfer card, try to pay back at least the minimum amount required each month. Otherwise, you may lose the promotional rate, which could end up making things more expensive.
After the 0% promotional period finishes, you'll start being charged interest at the card's standard rate. Check the terms and conditions to see how much this is. It’s usually a good idea to pay off your debt before the rate goes up.
Be wary of spending money with your balance transfer card. Before using it to buy something, check the terms and conditions to see if you’ll be charged interest on purchases. It’s often the case that the 0% rate is only applied to balance transfers, and not to new debt created on the balance transfer card. If you want to use your card for both balance transfer and purchases, you could consider getting a dual credit card.
Think a balance transfer card could be the right option for you? Here are some useful steps to take before applying:
Balance transfers are usually simple to do – you can often make the transfer online, via the lender’s website or app, or though their customer helpline. The lender will typically arrange to move your debts for you, so you shouldn’t need to contact your existing credit card providers yourself.
No. You can transfer over as many credit and store card debts as you like. But how much debt you can transfer over is determined by your credit limit, current balance and offers available to you. The maximum amount you can transfer is normally up to 90% of your credit limit – so if your credit limit is £2,000, the most you can transfer over is £1,800.
There tends to be a time limit for transferring balances at 0% – typically you have between 60 to 90 days.
In theory, you can transfer a credit card balance multiple times, transferring from one balance transfer card to the next. In practice, you’d need to make sure your credit score was high enough to be accepted for new cards.
A lower credit score doesn’t mean you won’t be able to get a balance transfer card, but your options may be limited.
If you have a ‘Poor’ or ‘Very Poor’ Experian Credit Score, for example, you may get:
If you are looking for credit, such as a balance transfer card, make sure you use comparison sites to check your eligibility first.
At Experian, we show your eligibility rating against every credit card result, as well as if you’re pre-approved for any cards. (Pre-approval is dependent on the information you’ve provided us – such as your address, salary and job status – being accurate. Other conditions may also apply, such as passing the lender’s fraud and identity checks).
Once your debts have been moved, you’ll need to decide what to do with your old cards, as these won’t be cancelled automatically.
You might choose to keep them open while your new card matures, because losing old, well-managed accounts can temporarily hurt your score. However, keep a close eye on old cards to protect them from fraud, and be careful not to spend on them as you’ll be charged your old interest rates.
Be aware, too, that the balance on your old card may not be zero – even if you’ve transferred all your debt to your new balance transfer card. How can this be the case? It’s because of something called ‘residual interest’ (also sometimes called ‘trailing interest’).
What on earth is residual interest, you ask? It’s the interest that builds up between the date of your billing statement, and the date you paid the balance off ‘in full’. (It helps to remember that interest is usually calculated daily – so you still owe those days of interest that have been added between the day your statement was printed and when you paid off the balance).
So even if you’ve paid off your statement balance and believe you no longer owe anything on that credit card, don’t ignore any subsequent bills – make sure you check them in case any final residual interest needs to be cleared.
It’s important to manage your credit card well, as this can help protect your credit score and keep your finances in order. Here are our top five tips:
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