A balance transfer credit card can be a great way to save on interest, and pay off what you owe sooner. But it’s important to understand how they work and how to use a balance transfer to make the most of your situation.
Let’s look at what a balance transfer is, and how it can help you save.
What is a balance transfer and how does it work?
A balance transfer allows you to move credit card debt (the balance) from one credit card onto another.
The reason why most people make a balance transfer is to make the most of a low balance transfer rate – moving debt incurring one level of interest to a place that will incur a lower level of interest.
Low interest rates can help you pay off your debt sooner, so people often take up balance transfer offers to save on interest repayments.
When you transfer balances, you could pay off that balance quickly at a lower rate than you previously had.
Check out the latest balance transfer rates through Virgin Money.
What is a balance transfer rate?
Some credit cards may come with a special introductory offer for balance transfers on top of other card features (such as a low purchase interest rate, rewards points or other extras) to attract new customers. Some credit cards offering low balance transfer rates may be geared specifically towards people interested in paying off credit card debt at a lower interest rate.
What are balance transfer fees?
A balance transfer fee is generally a percentage figure, charged on the balance you wish to transfer. For instance, a 2% BT fee means you will pay 2% on top of the total balance being transferred. Balance Transfer fees will be clearly stated in the offer and the terms and conditions.
Balance transfer offer periods
It’s important to remember that a promotional balance transfer rate is only temporary. The duration can vary and will be clearly specified in the offer. Once this period is over, the applicable interest rate will revert back to a higher interest rate, usually the cash advance rate or another specified figure. This means, if you don’t repay your balance transfer in full by the end of the promotional period, any remaining balance will start incurring the higher level of interest.
Balance transfer limits
It’s also a common condition on new credit cards that the total balance transferred may not exceed a particular percentage of the credit limit – for example, if your credit limit is $5,000, you might have a balance transfer limit of 80%, meaning you would not be able to bring more than $4,000 over to the new card.
It is very important that you read the full terms and conditions attached to any balance transfer offer and/or credit card to make sure you are armed with information to make an informed decision.
How much could you save on interest charges?
The amount you could save on interest charges will depend on a large range of factors like the balance you wish to transfer, your current interest rate, the interest rate you are moving to, the duration, and more.
Try crunching the numbers with our balance transfer calculator to work out how much you could potentially save by transferring your balance.
Compare balance transfers
So, what should you keep in mind when looking at a balance transfer rate? It’s important to compare balance transfer credit cards.
First, take a look at the total amount of debt you want to transfer to the new credit card. Depending on how much it is and how long you plan to take to pay it off will affect your choice of card.
A higher debt might be better on a credit card with a longer-term low interest rate, so you have more time to pay it off. A smaller debt may be fine to transfer to a card with a short-term interest rate special (such as six months) if you plan to pay it off quickly before the balance can incur the higher rate of interest.
Also look at any other features the card has to offer – remember, once you have repaid the balance you have transferred, you will still have the credit card to enjoy on a daily basis.
Would you consider getting a credit card to transfer a balance? Compare our credit cards to find the right choice for you.
Balance transfer FAQs
- What is the balance transfer rate?
- What is the purchase interest rate (the interest charged on new things you buy)?
- How many interest-free days are included (and when does it start?)
- Which reward programs are included?
- What is the annual fee?
- What other fees are there?
How do balance transfer credit cards work?
Balance transfer credit cards are where you transfer the debt you have on one card to another, often to get a low rate on the balance.
How to compare balance transfer credit cards?
To compare balance transfer credit cards you should consider:
How many times can you do a balance transfer?
In theory, there's no limit to the number of separate credit and store cards you can transfer over. But in practice, you're limited by the credit limit on the card. There will usually be a time limit for transferring balances though.
What happens at the end of my balance transfer?
At the end of your balance transfer period, interest will revert back to a higher interest rate, typically the cash advance rate or another specified figure.