Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.
Credit Cards
Balance Transfer Credit Cards
Nobody likes paying debts, least of all paying interest on their debts. Unfortunately what you buy, you must pay for. However, by employing the services of a balance transfer credit card, you should be able to get around the problem of paying finance charges on your outstanding amount every month, even if only for a limited period of time.
What is a balance transfer credit card?
To start at the beginning, a credit card balance transfer refers to the transferral of a balance (be it on a credit card, bank account, etc.) to a more attractive credit card facility. A balance transfer credit card may catch your eye for one of two reasons: it might offer an initial 0% APR on the balance transferred to it OR purchases made with it will be subject to low (or no) interest charges during the 'teaser' period. However, the best balance transfer credit card you will be able to find will combine both of these features. Be warned though, that not all balance transfer credit cards will offer an APR as low as 0%, but so long as you do your homework properly, you will still be able to save yourself a fair amount of money.
How do they work?
How the logic behind a balance transfer credit card works is as follows: A 0% balance transfer credit card company wants to attract more customers so as to make more of a profit. The problem is that you are already another credit card company's customer and in order for them to get you to become their customer, they need to lure you away with a really juicy offer. Hence the low (hopefully 0%) APR applicable to a balance transfer credit card. Viva la competition! Unfortunately, the lower your APR, the smaller the balance transfer credit card company's profits are going to be, and so they present this wonderful offer to you ‘for a limited time only', i.e. after a pre-determined amount of time, usually 6 months, your balance transfer credit card APR will change to a level at which your card issuer stands to make a fair profit out of you through charging you interest on your outstanding balance. They have effectively bought your debt from your previous creditor.
Work things to your advantage.
As always, if you're prepared to do a bit of research and keep your organisational skills in check, you can keep things working in your favour. Firstly, after having made use of a 0% credit card balance transfer option, you will not be paying interest charges and as such your minimum required monthly payments in respect of your balance transfer credit card account will start to decrease in size quite dramatically. Pay extra! Pay what you were paying before you acquired your 0% balance transfer credit card or as close as possible and you will be giving yourself more of a fighting chance at getting out of debt for once and for all. If 8 weeks before your balance transfer credit card ‘teaser' period is finished, you can see that you will still have an outstanding balance when your APR goes up, apply for the next best balance transfer credit card you can find and transfer your balance before you start paying interest on your initial balance transfer credit card account.
Squash your debt.
So long as you have a decent credit rating, you shouldn't have any difficulty finding another company with a similar balance transfer credit card offer. However, after a while you will start to be viewed as a 'card-hopper' and might find fewer balance transfer credit card deals coming your way. The key point to remember is that, if you are so determined to sort out your financial affairs that you are reading this article, you must keep the elimination of debt as your focus and spend on a credit card account, only what you know you will undoubtedly be able to repay at the end of the month.
Points to look out for.
There are some unscrupulous credit card companies out there, so here's a checklist to refer to when considering opening a balance transfer credit card account:-
- Find out how low the APR is (if it isn't 0%, keep looking).
- Make sure that the rate your balance transfer credit card APR will change to after the 'teaser' period is up is lower than the APR on your current card.
- Enquire as to what rate your balance transfer credit card APR will change to if for some reason you have to make a late payment and whether making a late payment on another of your credit accounts might affect the APR on your new account.
- Ask whether the APR applies to your transferred balance, purchases, or both. (try get a balance transfer credit card deal for both)
- Confirm whether there will be a balance transfer fee.
- Ask about late payment fees and penalty fees for exceeding your credit limit.
- Find out if you will be charged an annual balance transfer credit card fee, and if so how much.
- While you are waiting for your balance transfer credit card application to be processed, be sure to continue making your minimum payments to your current credit card account so as to keep your credit record in good order.
- Ask about any perks offered with the balance transfer credit card deal as you will more than likely want to compare a few offers against each other first.
- Lastly, and most importantly read the balance transfer credit card agreement offered to you until you understand everything contained in it. If you are unsure about ANYTHING, get someone to read through it with you. Whatever you do, do not sign without fully understanding the credit card balance transfer agreement.
