Understanding balance transfer credit cards

Balance transfer credit cards are a type of credit card where you can transfer the outstanding balances from your current credit cards onto a single card with a low or 0% interest rate. Consolidating your balances onto a single card can help you manage your debt more effectively

Balance transfers aim to reduce your interest payments by offering a low or 0% interest rate for a fixed promotional period. This gives you a set amount of time to pay off debt without paying high interest rates.

Here's an example using the M&S Transfer Plus offer.

1. You have a credit card with a balance of £1000 with a 20% interest rate.

2. You transfer the balance to our balance transfer credit card with 0% interest for 27 months and a 3.49% transfer fee, bringing your balance to £1,034.90.

3. To pay off the debt within the promotional period, you'll need to make a minimum monthly payment of £38.33 for 27 months, assuming there are no other credit card spends during that time.

Representative example
 

24.9% Purchase rate p.a (variable)

24.9% APR Representative (variable)

£1,200 Assumed credit limit
 

Balance transfer credit cards offer several benefits:

• Save money - consolidating your debts to one card can save on interest payments, freeing up funds to help you achieve your financial goals.
• Debt management - all outstanding balances will be on one card, meaning there's only one monthly repayment for you to track and manage.
• Credit score improvement - by consolidating your debts onto one card, you reduce the risk of late or missed payments. Over time, this can improve your credit score.
   

While balance transfer credit cards can help you save money and manage payments, there are also some potential drawbacks to keep in mind:

• Good credit recommended - people with excellent credit scores often receive the best balance transfer deals. If you have a lower credit score, credit card companies may disqualify you from the best deals or offer you a shorter promotional period.
• Not clearing debt - your credit card provider may charge you high interest payments if you don't clear your debt within the promotional period. Missing a minimum monthly payment can also lead to late fees and damage your credit score or loss of the promotional rate.
   

When applying for a balance transfer credit card, it's important to choose one that's right for you:

• Long-term balance transfers - these balance transfers offer low interest rates for a longer promotional period, making them a good choice if you need more time to pay off debt. However, they may come with higher transfer fees.
• Short-term balance transfers - these balance transfers are ideal if you have smaller balances as they have a shorter promotional period.
• Purchase offers - some balance transfer credit cards offer a combination of long-term 0% purchase offers and balance transfer options, which is useful if you plan to make purchases with your card as you pay off debt.
   

To avoid extra charges, make at least the minimum monthly payment on your credit card statement. This will help you pay off debt before the promotional period ends. Keep in mind that falling behind on a payment can lead to late fees and damage your credit score.

When applying for balance transfer credit cards, you should evaluate your options to avoid common pitfalls such as additional fees and interest charges.

Consider the following to help you decide if a balance transfer credit card is right for you:

• Promotional period - can you pay off debt within this time?
• Transfer fee - a one-time fee is usually required to transfer your balance, which can eat into your potential savings and make it harder to save money.

Balance transfer credit cards can be a helpful tool to pay off debt and reach your financial goals. If you want to learn more on how you can manage your debts, check out our financial support page and find out how we can support you.

Updated August 2024