In March, it was revealed that balance transfer deals have sweetened thanks to longer interest-free periods and lower fees. As a result, now really is a great time to shift any credit card debt you have to 0%.
But what if you get a new balance transfer deal only to discover you’ve been given a miserly credit limit? Let’s take a closer look.
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Balance transfer credit cards: how do they work?
Before we take a look at credit limits, it’s worth understanding what balance transfer credit cards actually do.
Put simply, a 0% balance transfer credit card allows you to shift credit card debt to it to reduce the amount of interest you pay to zero for a limited period. So, if you have debts on an existing credit card, you can sign up for a new 0% balance transfer credit card and transfer across debt from your old card.
Do this and you’ll owe your new balance transfer card instead of your old card. Importantly, your new card will be at 0%. This means anything you move over will be interest free for the entire duration of the 0% period.
Let’s take a real-world example. Say you have £5,000 of credit card debt on a bog-standard credit card with a typical APR of 39.9%. This means you’ll be paying interest on this card to the tune of £1,995 a year. However, if you transfer this debt to your new 0% balance transfer credit card, then the interest you pay will drop to zero for the duration of the 0% deal.
So, if you manage to clear your balance before the 0% period ends on your new card, then you can wipe your debts without paying interest.
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What balance transfer credit cards are available right now?
Right now, the longest 0% balance transfer length is 33 months via HSBC. While it’s a very generous 0% offering, anything you transfer to the card incurs a 2.7% fee. Plus, to get the 0% deal you must shift your debt within 60 days of getting the card. The card’s representative APR is 21.9%.
If you’d prefer a card without a transfer fee, then Santander offers the longest no-fee card that’s open to all. It offers a hefty 21 months at 0% and has a representative APR of 20.9%.
As an added bonus, the card also gives three months’ 0% on new spending. However, if you want a card for spending, there are more generous 0% purchase credit cards out there.
For more options, take a look at The Motley Fool’s top-rated 0% balance transfer credit cards.
What should you do if you’re given a low credit limit?
If you’re accepted for a 0% balance transfer credit card, you’ll be given a 0% period and credit limit to go with it. Importantly, some balance transfer cards give borrowers with poorer credit scores a shorter 0% period. It’s wise to use a credit card eligibility checker before applying because some cards might pre-approve you, giving you a guaranteed deal.
The credit limit you’re offered will be influenced by your credit score, as well as other variables such as your credit utilisation ratio.
This means that if you apply for a new balance transfer card, then you could be offered a low credit limit. This can be problematic, especially if the limit is lower than the amount of debt you plan to shift across.
However, if this happens, it doesn’t mean you should disregard the deal you’re offered. It could be better to use the limit you’re given and then consider applying for another card to transfer your remaining debt.
By doing this, you won’t have needlessly wasted a credit card application. Remember, every time you apply for a credit card, it is recorded on your credit file. Too many applications in a short space of time can harm your credit score.
Of course, if you are given a low limit, there’s every chance you’ll be rejected for another card. If this happens, then you may have no other choice but to continue paying interest on your existing card. However, as you’ll have managed to transfer some of your debt, you should still be in a better position than if you hadn’t applied for any new cards.
For more debt-shifting tips, take a look at our article that explores the dos and don’ts of balance transfer credit cards.
