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How do balance transfers work?

How do balance transfers work?
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For the 40% of UK consumers who do not pay off their credit cards in full each month, balance transfer credit cards could save them significant amounts of money in interest charges. 

With a balance transfer card, consumers transfer existing credit card debt onto a new credit card that has a lower rate of interest. In fact, some cards offer a 0% introductory interest rate on balance transfers. This may be to provide breathing space while they organise their finances, for example. Or it could allow them to maintain their current level of repayments and repay their debt earlier than they otherwise could have with their existing credit card.

While balance transfer cards are simple in theory, there are potential fees and a number of pitfalls that consumers should be aware of. Understanding the balance transfer landscape could be the first step to reducing interest charges and paying down debt at a faster pace.

The logistics of a balance transfer

A wide range of balance transfer credit cards are currently available. Applying for a balance transfer card is relatively straightforward and can usually be done online. In order to ascertain whether an individual has a good chance of being accepted for a new credit card without hurting their credit score, they may wish to use eligibility checker tools that are available on a  variety of credit card issuer websites.

When applying, an individual would provide details of any balances they wish to transfer. Should their application be accepted, their debt would be transferred from their existing credit card to their new balance transfer credit card. The individual would then start benefitting from what could be a lower rate of interest for a time-limited period.

Potential costs

Balance transfer cards, of course, are not without their costs. Many balance transfer credit cards charge a fee for transferring an existing debt. This is often around 3% of the amount being transferred, with the fee for a longer balance transfer period often being higher than it is for a shorter balance transfer period. Consumers should check that their potential interest savings over the balance transfer period are higher than the balance transfer fee.

Balance transfer cards may also lack features that are available on other credit cards. It is possible to generate significant rewards and cashback from credit cards at the present time, but many balance transfer cards do not offer such opportunities.

Balance transfer cards may also have foreign transaction fees. This is where a fee is charged for any transaction made in a currency other than sterling, and is usually around 3% of the total amount spent. It could be worth having another credit card for day-to-day use in the UK, or even a travel card for when abroad.

Potential savings

The savings from having a balance transfer card could be significant. For example, an individual who has a £3,000 debt on an existing credit card with an APR of 18.9% and who pays £150 per month could save £570 in interest over a two-year balance transfer period for a credit card with a 0% interest rate on balance transfers for those two years.

In the above example, maintaining repayments at £150 per month would lead to the individual repaying their debt four months earlier than if they had not obtained a balance transfer card. Even with a 3% balance transfer fee of £90 included, the savings in the above example could be as much as £480.


Balance transfer cards could be a worthwhile option for consumers with existing credit card debt who are looking to cut their interest costs. The process of obtaining a balance transfer card is relatively straightforward. While there are opportunity costs from having a balance transfer card, the overall benefit of a balance transfer card could be significant, depending on a consumer’s personal circumstances.

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