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balance transfers on credit cards explained

by Jim ONeil on April 1, 2011

in uk loans news

A Balance transfer in a nutshell

A balance transfer is simply using one credit card to repay the money owed on another other credit card by taking advantage of a reduced rate. This rate is primarily offered to new card holders who wish to transfer their balances over to a new provider.

Selecting the best balance transfer deal

There are a number of different variables at play here which determine what you should consider. Your credit history, your outstanding debt and your ability to repay are all different cogs in the wheel. This should all be taken into account when looking for the best balance transfer deal.

Old credit cards

If you have held credit cards with a provider within the previous 18 months, it is highly unlikely that they will approve you for one of their balance transfer deals.

The Best Balance Transfer to go for

If you are happy to continually shift your debt around to new providers every few months or you can repay your debt quickly, then a 0% deal structure is what you should be looking for. At the moment, these 0% deals are at their most competitive ever. The interest free period on some is now valid for up to almost two years. What you have to weigh up is whether this interest free period is worth the transfer fee that is charged for moving your debt. As a rule of thumb, the shorter the interest fee period the lower the transfer fee.

The longest 0% deals


Card Issuer: Visa
APR: 17.5% variable
Minimum income: £20,000
Restrictions: Transfer must be within 60 days
Other information:

This is the longest interest free period available on the market at an incredible 20 months. The transfer fee is slightly higher than other cards at 3.2% to compensate for this. After the 0% introductory period is over the interest rate reverts to 17.5%. Unfortunately you cannot transfer balances between two Barclaycards.

Card Issuer: Visa
APR: 15.9% variable
Minimum income: none
Restrictions: no
Other information:
You cannot transfer the debt from other MBNA cards. If you miss any of the minimum monthly payments you will lose the deal.

Card Issuer: Visa
APR: 15.9% variable
Minimum income: none
Restrictions: no
Other information:

This is the longest 0% on the market if you are already a holder of the MBNA or the Barclaycard.

Other long term 0%  deals

Card Provider Interest Free Period Balance Transfer Fee Variable APR Thereafter
HSBC 15 months 2.9% 16.9%
First Direct 15 Months 2.9% 16.9%
Halifax 15 months 3% 16.9%
RBS 16 months 2.9% 16.9%
Santander 16 months 3% 16.9%

Credit cards and personal loans

Now, with the huge array of long term 0% deals available it brings personal loans into the frame. It could be better to use a 0% credit card deal to pay off a personal loan in a similar way to transferring a credit card balance as per the usual use of a “balance transfer.” It would then be a simple question of locking the credit card away and simply repaying the debt. With Personal loan rates hovering around a best of 8% it could be interesting to use a balance transfer for an existing personal loan debt rather than an existing credit card debt.

Rate for life cards

If you have an existing debt such as a personal loan which has a longer maturity than two years, credit card providers are now also offering a fixed rate until the debt is paid off. These should also be considered if it works out cheaper than your existing personal loan.

Cards For Bad Credit Scores

Since the recession it has become increasingly hard to get credit, particularly if you suffer from an adverse credit history. Thankfully, there are still options available for those with a less than perfect credit score.

Minor credit problems

If you feel you only have a minor credit history problem and haven’t made a credit card application in the past year it may be worth trying for the best credit cards as you may still be accepted. If this is not the case you will need to follow some of the other options below.

Use a credit score comparison website

Money Supermarket has an excellent function which asks several questions about your credit history. Based on this it tries to match you up with the right credit card provider. It is good because it does light searches which don’t leave a mark on your credit file. Other comparison providers include Find a Lender and Credit Checker.

Look for cheaper debt without new credit

Sometimes it is possible to get a better deal with your existing provider by using existing customer balance transfer deals to restructure your existing debt and reduce payments.

Be wary of adding insurance

Payment protection insurance is often sold with credit cards. It basically means that if for whatever reason you cannot maintain your repayments then these will be paid for you for a period of up to a year. The insurance can be useful but it is expensive. If you chose to go down this root it may be worth looking at independent insurance providers rather than your credit card provider. It may well be cheaper.

The size of the saving

Over a short period like six months nothing can beat 0% interest.This is shown in the below table how transferring from a standard credit card can save you a considerable amount of money.

    After 6 Months   Until Debt Repaid  

Card
APR Remaining Debt Interest Cost Time To Maturity Total Interest Paid
Standard credit card 20.9% £4,560 £460 48
months
£2,185
0%
Transfer card
0% +
3% Fees
£4,100 £150 36
months
£270

FAQs

How do I start the process of a balance transfer?

It is straightforward. When you are applying for a new card, there is a section titled “would you like to transfer debts from other cards?” If your application is approved the balance on the other cards will be paid off. There is a honeymoon period as well with most providers allowing a debt transfer up to 3 months after approval.

What amount should I pay off every month?

It is best to pay off as much as possible. Even 0% still means you have an underlying debt, just no interest to pay on the debt.

With a lower interest rate am I paying less each month?

There is no relationship between the interest rate and how much you pay off each month. This is controlled by the minimum monthly payment on the card. Unlike loans, with credit cards you can chose how much you pay every month above the minimum payment.

Is the balance transfer fee interest free?

Usually the interest on the transfer fee is paid off in your first monthly repayment, therefore the interest will be very small.

Which cards have the best credit limits?

Barclaycard is known as having smaller credit limits and MBNA higher credit limits but overall the size of your limit is completely driven by how you are assessed by the credit card provider.

What is the maximum number of times I can do balance transfers?

There is absolutely no ceiling is the answer. You can transfer from card to card. The only question is whether your credit score is high enough to be accepted by a new credit card provider.

What if the credit limit is too small?

It is best to move what you can and then when the time is right simply apply for another credit card providers card and move the rest to there.

How has the recession impacted on balance transfers?

There are far deeper factors than the credit crunch. Lenders may choose to give credit cards to customers who potentially might take a mortgage even if they may not have an unblemished credit history. It is not all about risk.

Will balance transferring hurt my credit score?

If you do a series of applications within a very close timeframe it may have an impact on your credit score. It is always better to spread out your credit card applications. If you follow this rule and you have a decent income and no missed payments you will not have any problems.

When should I look to balance transfer?

If you are moving from card to card looking for cheap 0% deals it is best to apply around six weeks before your 0% deal comes to an end. This gives you enough time to apply, find out if your application has been approved and then transfer over the debt.

Marlon Trent

I had trimmed £10,000 off my limit, go figure!

Despite your bank account balances many are carrying too much credit card debt and may get picked on for pyramiding thedebt,, That means getting new credit and moving your balances around … viciuos circle

There are some better cards to carry a balance on out there.CITI has a 0% for 18-month BT offer, you guys may wanna check that out?

..

Paul_Dwyer

In a way, it can become a bit of an addiction moving from lender to lender in order to find the best deal. I myself lived liked this for about four years as I struggled to manage my credit card debts which spiralled out of control. I still have about £15,000 outstanding but that’s a damn site less than the £28,000 I originally had. The repayments were ridiculous and I had no choice but to become a “card tart” Paul

Martin Dewilder

I agree with the guy above, I would not recommend balance transfers to anyone. It just sanitises something that is actually very unsavoury. I mean, it’s like saying its ok to build up big credit card debts on several cards because we can just roll them into one single payment, reduce our monthly minimum repayment charge and everything will be hunky dory. Get real, Balance transfers are unpleasant. Martin, Worthing

jez Riley_86

I don’t think anyones got anything good to say about balance transfers and I am not going to buck the trend! They really are nasty products sold by loans providers. On the face of it you are told that they are nice and safe, friendly ways of consolidating your debt and this is the real problem. people see them as a way to justify their borrowing. Makes me sick. Jez

Twitter Bird

You need to ask the new credit card to provide you with a Balance Transfer check.
They will charge you 3-5% to use the balance transfer check in addition to whatever % they charge for balance transfer (unless they are running a deal for 0% balance transfers, but there will still be the initial fee)
For a £200 balance it would be better to find a way to pay it off entirely & get rid of it!

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