Do you ever wonder how credit card balance transfers work? Look no further. We’re here to explain what a credit card balance transfer is and whether it’s right for you.
What is a balance transfer?
A balance transfer card is a credit card that gives you the option to transfer balances from your existing cards to the new card. The main reason for doing this is that a balance transfer card typically offers a period of 0% interest on balances transferred from other cards.
So, for example, if you owe £1,000 on an existing credit card with an interest rate of 19%, you could transfer this £1,000 balance to a balance transfer card with 0% interest over a specified period.
You would then have a specified period of time during which you could focus on paying off the £1,000 balance without incurring any further interest charges.
It’s a useful step towards paying off credit card debt. You don’t have to worry about additional interest charges as long as you can clear the balance during the 0% period.
How do balance transfers work?
Taking the example above, you have an existing card, called Card A, with a £1,000 balance. You have been approved and accepted for a balance transfer card, called Card B, and want to transfer the £1,000 balance to this card.
You will be able to provide the transfer details with your initial application for Card B. The card provider will then take care of the transfer once you have been approved.
Alternatively, you can get Card B first, then apply for the balance transfer from Card A later online or over the phone. Make sure you have the relevant details to hand, such as the card number of Card A, the card provider and the balance amount (in this case, £1,000).
However, it’s important to note that balance transfer cards will give you a window of opportunity in which to transfer your balance. This will be a period ranging from 60 to 90 days. You must transfer the balance within the timeframe in order to qualify for the interest-free period.
What about fees and charges?
Once the transaction is complete, the balance on Card A will reduce to zero. The card provider of Card B may charge a balance transfer fee of around 1-3% of the balance being transferred (in this case £10 – £30). This will be added to the balance, so the balance on Card B could be anything from £1,010 to £1,030.
While the immediate balance on Card A will be zero, there might be interest accrued, so the next bill for Card A will need to be checked for interest charges.
Can I transfer balances from more than one card?
It is possible to transfer more than one balance to a single balance transfer card as long as you stay within the limit. However, you will not be permitted to transfer balances between cards from the same provider or the same financial group.
So, if you have a balance on a First Direct credit card you would not be able to transfer this to a HSBC balance transfer card. This is because First Direct and HSBC belong to the same banking group.
If you have a balance on more than one card, check with the card providers to find out which banking groups they belong to before applying for a balance transfer card.
Which card should I choose?
When asking “How do credit card balance transfers work?”, you need to think about your circumstances and be realistic. If you are committed to paying off your credit card debts, it’s a good idea to put together a plan of action.
You will need a budget to work out how much you can afford to pay each month once all of your essential expenses have been taken care of. This will give you an idea of the amount of time you will need to clear the balance.
Once you have a realistic time frame, you can then look for a balance transfer card with an appropriate 0% interest-free period.
Working out the time you need to clear the balance will prevent you from selecting a balance transfer card with an unsuitable interest-free period.
Avoiding a card with a shorter period than you need will prevent you from paying interest on the outstanding balance when the interest-free period ends. Alternatively, avoiding a card with an interest-free period that’s longer than you need could help you avoid having to pay a higher upfront fee.
It’s in your best interest to stick to your budget and pay off the balance on your balance transfer card. This is because the interest free period is a short to medium term solution. Take the discipline you’ve used to organise the balance transfers and channel it into adopting good future spending habits.
Thinking of getting a balance transfer card? Check out our list of top-rated balance transfer cards to see what might be a good option for you.
Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.