What Are Balance Transfer Credit Cards?
A balance transfer credit card allows you to transfer the balances from your other credit cards onto one card. This means you could pay off your credit card debt quicker as you’ll only have one repayment to make and there is usually no interest to pay for a fixed period.
How does a Balance Transfer Credit Card work?
Balance transfer means moving the debt from one card to another. Usually this is done when you are paying a high level of interest on your card and can save money by moving to a card with lower interest (or no interest to pay at all).
This means you can pay off your debt without adding interest to your repayments.
Balance Transfer Cards explained:
- You may find that you have to pay a fee for a balance transfer
- This is usually between 1%-3% of the total balance being transferred (but could be higher)
- Some credit card providers may offer to transfer a balance without you having to pay a fee but you should check there are no other limitations
Points to consider
- You should check that the fees you may need to pay aren’t more than what you might save in interest with a new card
- If you decide to close your old card account after you’ve transferred a balance you should be aware that this could affect your credit score.
- If you decide to keep this account open, think carefully before using it again for purchases.
When should you get a Balance Transfer Credit Card?
A balance transfer credit card can be the right solution if you have a balance on a credit card and you are being charged a high level of interest on that balance. Or you may have balances on a few cards which you want to move onto one card (sometimes called ‘consolidation’). Whatever the reason, here are a few things to think about when deciding if a balance transfer card is right for you:
- Can you afford to pay off the debt on your current card over the next few months? If so, this might be more cost-effective than moving the balance to a new card.
- Will you qualify for a balance transfer card with 0% interest? Or a card without a fee to pay for the transfer?
- Check if the credit limit on the new card is high enough for you to transfer your existing balance.
Answering these questions will help you decide if a balance transfer card is right for you and which one you should go for.
How a Balance Transfer card affects your credit score
If you decide to apply for a balance transfer credit card, it could affect your credit score. Here’s what you need to know:
A new credit check
Applying for a new balance transfer credit card will result in a ‘hard’ search on your credit report. Initially you may see your credit score decrease slightly.
Responsible account management
Transferring your balance to a new credit card and paying this debt down shows good account management.
Multiple credit cards
If you transfer your balance onto a new credit card and decide to keep your old card, you may see a bigger impact your credit score.