Things you need to know about balance transfer cards
What exactly is a balance transfer card, and when can it be used to help with your finances? We take a look at what you need to know when it comes to these type of cards.
What is a balance transfer card?
A balance transfer in many ways is self-explanatory, it works by shifting debt from one account onto another a new credit card. This balance transfer credit card pays off the balance of your old card through swapping.
Using balance transfer cards can help you to manage credit card repayments, especially if you are able to move to a 0% balance card, as it essentially works similarly to an interest-free loan, providing that you are able to make payments promptly within the 0% time frame. Depending on the provider, a 0% balance transfer credit card can have a 0% rate for 3 months, anywhere up to 24 months.
However, it is recommended that you proceed with caution, and thoroughly consider whether or not a balance credit card is the best way to tackle debt management in your circumstances. It may be that a payday loan would be better suited to your needs.
When would someone choose a balance transfer card?
Many decide to move debt onto these type of cards once a 0% purchase deal has expired, but they still a hefty balance on it, but will now have to incur a high-interest rate on top of it. Others decide to get one of these cards as they have used the credit card to make a large purchase and would like additional time to pay it off without incurring interest.
Things to remember about balance transfer cards
Whilst many balance transfer cards come with an initial interest rate of 0%, there is usually some sort of transfer fee to pay. This is usually charged upfront and is a percentage of the amount you have decided to transfer to the new card.
You can’t transfer to the same parent group
Another thing to remember is that is it isn’t usually allowed to transfer within the same parent group of card companies, for example, NatWest and RBS.
Make prompt repayments
You should always try to aim to pay off at least the minimum amount on a balance transfer card each month, which will help you keep on top of your debt and pay it off at a quicker rate. It is recommended to set up a direct debit with a minimum payment in order that you don’t forget. It is also worth clearing before the promotional offer of 0% ends on the balance transfer card, as this means other than the initial transfer fee, you will not have to pay any additional interest for having opened the account, and end up only paying the debt.
Avoid making purchases
Some balance transfer cards do have introductory purchase offers when you make an account, however, it is usually on a short-term basis, meaning that you could end up paying interest on it, as well as paying the debt, at a later date making it hard to clear off the balance.