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Balance transfer credit cards are as popular as ever, and with so many credit card providers in the market competing for your business, you can really benefit from shopping around.
Balance transfer credit cards are designed for you to move your balances from your existing cards onto the new card. Transferring is quick and simple [see more information on how balance transfers work].
The whole point of getting a balance transfer deal is to save you money, so it's worthwhile to compare cards and read the small print carefully.
Finding the Right Balance Transfer Credit Card for You
Just as we all have different clothes that suit our differing shapes, with a little research you should be able to find a balance transfer credit card that suits you. We all have different spending habits and different ways of managing our finances. If you end up with a card that does not suit you, it may cost you money.
The main types of balance transfer credit cards are:
If You Have Large Credit Card Balances Elsewhere
If you have one or several credit cards with other issuers, and want to take the benefits of consolidating the balance onto one card, then the important thing for you to consider is what you intend to do with the debt in the future.
If you intend to:
- Pay off the debt in one lump sum from funds that you know will be with you in the next few months - use a straightforward 0% balance transfer credit card to 'park' the debt on until the cash comes through. Look at how long the 0% period lasts for and make sure that it is long enough for you to raise the funds to repay. Choosing a life of balance credit card could save you the initial outlay of the transfer fee, and give you even more flexibility with timescales, but the balance will be charged a minimal interest rate - around the base rate.
- Pay off gradually over several months - best type of card to go for here is a 0% balance transfer offer. This will give you up to 14 months to repay the debt in monthly chunks. Beware though - you must keep to the terms and conditions or risk losing the 0% interest rate.
- Pay off gradually over a few years or without ending promotional rates - choose a life of balance transfer credit card. While you will have to pay interest at around the base rate, you can take a few years - or as long as you need to repay the balance in full. Offers can also be found without transfer fees due to the minimal interest charges, which can save you a cost of around 2% - 3% of the amount you are transferring.
For any of these, if you make any purchases, because of the allocation of payments clause, they will be waiting in line behind your balance transfer to be repaid, meaning that they will be attracting interest charges while you labour to clear the 0% or low rate interest balance transfer first. Also, read the section below on balance transfer fees.
If You Want to Continue Making Purchases as Well
If you want to consolidate existing card debt onto a balance transfer credit card while also using the new card to make purchases, then it is best to look for one which offers 0% interest on both balance transfers and purchases.
The majority of 0% purchase offers will have a limited life, and they are often coupled with a longer 0% balance transfer period. These are the deals to avoid - if you intend to spend on a 0% balance transfer credit card – or any balance transfer credit card, it's vital that the promotional offer on balance transfers also applies to purchases for the same length of time.
So if you are going to transfer a balance and spend on the same card you'll need a 0% balance transfer and purchase credit card. For example, MBNA offer 9 months at 0% interest on both balance transfers and purchases.
Alternatively, you might want to look at getting a second card for new purchases - either with a 0% purchase rate or a low interest rate that will remain cheap.
If You Want to Move Balances Around Regularly
If you have a large balance, one option is to move between 0% balance transfer credit cards as each rate expires. This is known as 'Rate Tarting' and used carefully can mean that you can extend an interest free period on your debt for many years.
However, you need to keep up with the minimum monthly repayments (between 2-3% of the balance) and keep a close eye on when the offer rate expires - make sure you allow plenty of time to switch between cards.
Beware though - Rate Tarting may damage your credit rating, as the footprint of repeated applications will appear on your credit record.
If You Need Withdraw Cash on Your Card as Well
Cash withdrawals are best avoided on all credit cards - they attract a higher rate of interest and will be charged from day one. They will also sit behind any balance transfers, meaning they attract a higher rate of interest until any special rate balance transfer (or purchase balance) is repaid.
Balance Transfer Fees
Card issuers are competing for your business, but they are also there to make money. The days of 0% balance transfers with no transfer fee are gone for the moment.
Card issuers will typically charge you 2-3% of any balance transferred to them as a fee. This will be added to your balance.
If you are looking for a no-fee transfer, then you will need to pay interest. There are several providers offering low-rate balance transfers (typically around 5.9%) with no fee e.g. Citi or Goldfish.
Which deal works best for you depends on your balance and how quickly you're going to pay it off. If you're leaving it on there for some time, then a 0% balance transfer credit card with fee will probably save you the most money. If you're going to pay it off fairly quickly in lump sums, then you may save more if you go for a low interest balance transfer credit card with no fee.
Summary
The best way to proceed is to decide which of the broad categories above you fall into.
This will give you some focus to examine the balance transfer deals on offer, but you will still need to get your calculator out to compare between cards, and you will need to have a clear idea of what you’re going to do with the debt in the future.
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