How do balance transfer credit cards work?

A balance transfer card lets you transfer the balances from your existing credit cards and store cards to one card.

Having a number of cards with different interest rates and payment dates can be hard to keep track of. Consolidating your debts into one place can make things easier to manage.

Can they help?

A balance transfer card can help you organise your finances. Instead of making multiple card payments, you will have one monthly payment to make.

By shifting your debt to a new card, you might be able to save money by paying less interest than you were previously, or even no interest at all. Many balance transfer cards offer a 0% introductory period.

If you are accepted for a 0% interest card, you can avoid paying interest by clearing the full balance before this period ends. Cards with this promotion can help reduce the cost of debts and help you pay back less overall. 

However, as you’ll be combining the debts into one monthly payment, to keep this affordable you may need to make payments for a longer time than you were previously. If this term exceeds the 0% interest window, you may end up paying interest.  

If you aren’t able to clear the full balance before the 0% period ends, depending on the interest rate you are charged, this could mean it takes you longer to clear your balance than it would have originally.

So if your main motivation for using a balance transfer card is to save money on interest, work out whether paying a lower interest rate for longer will save you money or cost you more in the long-run.  

But you may have a different reason for choosing to use a balance transfer card, like simplifying your finances and making it easier to keep track of your payments. Only you can decide whether the costs involved are worth it.

Do they cost?

You should expect to pay a fee to shift the balances on your other cards. This charge will depend on the lender, but typically you will be charged between 1% and 3% of the balances you transfer from your existing cards to the new one.

When looking for a suitable balance transfer card, ideally you should apply for one with a lower fee and longer interest-free period. This will make it cheaper and faster to clear your debts. Just be aware that this sort of deal is typically only available to those with the best credit histories.

Before agreeing to consolidate this way, work out whether you can afford your monthly payments. Missing your payments can be harmful to your credit history and, as a result, affect your ability to borrow again.

Do they know my history?

Bear in mind that lower interest rates and 0% deals are usually reserved for those with a positive credit history. If you’ve struggled with your payments in the past - and lenders see you as an unreliable borrower - you are likely to pay a higher interest rate.

For this reason, before applying for a balance transfer card you should check your credit history. This way you will be able to see what lenders see about you. From here, you can decide whether it’s worth applying for a card or holding off until your credit history has improved.

If you have a poor credit history, it might be best trying to get on top of your debts rather than applying for a balance transfer card. Remember rejected applications will mark your credit history, causing further damage.

However, there are soft search tools available that can tell you whether you are likely to be accepted for a balance transfer card before you apply. These searches are not visible to other lenders. You can find out more about this here.

If you don’t think a balance transfer card is the right option for you, there are other ways to consolidate and simplify your debts.