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What’s the difference between a balance transfer card and a money transfer card?
Card hopping – taking the debt you have on one credit card (or a few) and shifting it to another - is one option for consolidating your debts.
Enticed by attractive APRs and introductory offers, card hoppers reap the rewards of not sticking to one card in the form of lower interest rates. This can be a popular form of debt consolidation, as you swap a few different monthly credit card bills for one.
There are a number of ways you can switch your debt from one lender to another. Today, we’ll look at the difference between a balance transfer card and a money transfer card.
What is a balance transfer card?
In simple terms, a balance transfer card lets you move a debt from one lender to another. One reason for doing this might be that another card offers a better APR than the current one you’re on.
Another reason you might consider a balance transfer card is to consolidate several different debts into one. This means that rather than trying to keep track of a few different credit card bills and APRs each month, you would just pay one. This can make it easier to manage your bills, and if you can move your money to a card for a 0% or a lower interest rate offer period, you should be able to save money too – providing you clear your balance during the offer period.
What is a money transfer card?
While the principle is much the same – you’re moving your debt from one place to another – a money transfer card works a little bit differently to a balance transfer card.
With a balance transfer card, you transfer the debt directly from one credit card to another. In the case of a money transfer card, however, the money will actually go into your current account, and you then choose where it goes.
This means you can take the funds from one product – your credit card – and repay other debts if you like. So, if you have an overdraft that you want to pay off, you can use the credit to repay this and transfer funds towards clearing your debt – perhaps a personal loan, or catalogue debt.
The differences and similarities
The main difference between a balance transfer card and a money transfer card is that with the former, you are restricted to only moving credit card balances to your new card. You don’t see the money in your account, it simply moves across. With the latter, you are not so restricted to the debts you repay.
So, if you have a £2,000 outstanding balance spread across two credit cards and you are £1,500 overdrawn, you could take out a £3,500 money transfer card to clear your overdraft and then transfer the rest to paying off your credit cards. You would then pay one monthly bill for your money transfer card.
However, if you took out a balance transfer card you could transfer the balance of your two credit cards on to it and pay those off, but you would need to find an alternative way to clear your overdraft.
Both balance transfer and money transfer cards tend to offer an attractively low interest rate (or even interest-free) – although these are sometimes for a limited period. However, you need to consider that for both – either a balance transfer card or a money transfer card – there are fees for shifting the debt. If you do switch to an interest-free or low interest card, you should aim to clear the balance before the offer period ends – as the interest rate it reverts to may be quite high.
We hope this has cleared up any confusion you felt over balance and money transfer cards. If you’re considering consolidating your debts, you can find out more information on this here.