While there are a lot of similarities between the two, there are some important differences too – and you’ll find out what they are right here.
If, for whatever reason, you’ve found yourself in a spot of financial bother - maybe you’ve got multiple unpaid credit cards, found yourself paying fees on an overdraft that doesn’t seem to be getting any smaller, or you need to pay for some urgent home repairs, you might have considered either a balance or money transfer card.
But in an ever-growing market of financial products, it can be hard to work out what’s what, or which product is right for you.
In this blog, we’ll take balance transfer cards and money transfer cards and explain the difference between the two, and why you might want to use them. We’ll also briefly look at your alternatives, and how to make a decision that will work best for you.
Balance transfer cards
Simply put, a balance transfer card is used to transfer the balance from one or more credit cards to another. But why?
Some credit cards involve very high-interest rate charges, and this can leave you in a situation where you’re only paying off the interest every month, rather than clearing the money you owe.
However, many lenders now offer credit cards with a minimal or even 0% interest charge for a limited period of time, so a balance transfer can be very beneficial and could save you lots of money. By transferring your outstanding balance to a card, with little to no interest, you could find yourself clearing your credit card debt much sooner than you imagined, providing you repay within the term offered.
Balance transfer cards can also be used to consolidate multiple outstanding credit card debts. By moving several debts into one place, you can make your monthly payment more simple and manageable but be sure to pay more than the minimum payment.
Money transfer card
The key difference with a money transfer card is that you use the card to transfer money straight into your bank account, rather than onto another credit card.
For this reason, money transfer cards can be used to clear all manner of debts; store cards, overdrafts or even to fund projects or purchases.
Similar to balance transfer cards, if you’re paying high-interest charges on your outstanding debts, a money transfer card could offer more competitive rates and save you money in the long run.
Money transfer cards can also be used to consolidate multiple outstanding debts, by transferring the money into your account so that you can then pay off your creditors in full, with just one monthly sum.
Things to consider
Whether you think a balance transfer or money transfer card might be an option for you, be aware that there is typically a fee for doing either - which is usually a percentage of the amount transferred. While this is often minimal compared to the savings you could make, it’s important you know what you’re signing up for.
Do your homework before signing up to either type of card to find the very best interest rates available to you. 0% interest rates could be available to those with excellent credit scores, but even if your credit record is less-than-perfect, you could still find a card with an interest rate lower than what you’re currently paying.
Also, be aware of the timescale that’s been placed on your low or 0% interest rates, as introductory rates don’t last forever. Where possible, you should try to clear your balance, or at least as much of it as you can, within this low interest or interest-free period.
With either card, once the transfer is complete, try not to spend on it like you might with another credit card, as it’s likely the same terms or interest rates won’t be offered for further transactions.
You could find your lower interest or 0% rates are taken away and replaced by the standard rate if you miss a payment on your new card. As with any form of credit, ensure you only borrow what you can afford, and keep up to date with monthly repayments, making sure they are paid on time and in full.
Which option should you choose?
In a nutshell, you might choose a balance transfer card if you’re looking to move or consolidate purely credit card debt. But if your outstanding debt is anywhere else, or spread across credit cards and other forms of credit, then a money transfer card could be an option for you.
Debt consolidation loans
If your main goal is to consolidate multiple existing debts and neither of the above options appeal to you, then a debt consolidation loan could be worth looking into.
Many lenders now offer unsecured debt consolidation loans with competitive interest rates. The main benefit of this kind of loan is that all your debts are in one place, which makes managing your debt more straightforward.
Advantage - One of the key advantages of a debt consolidation loan instead of a balance or money transfer card, is that you’ll pay a set amount in repayments each month, and your debt is cleared within an agreed amount of time - if you keep up with your repayments, that is.
Disadvantage - On the downside, debt consolidation loans typically carry higher interest rates than the introductory rates sometimes offered on balance or money transfer cards.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.