What is a Balance Transfer?

A Balance Transfer (BT) is the process of moving debt from an existing credit card to a new one. So why would you do that? Very simply, you would do that to reduce the cost of your debts, saving you 100s if not 1000s of pounds in the process. The credit card industry is very competitive, so card issuers are keen to steal business from their competitors. To do this, they offer deals to attract customers away from other lenders. One of the biggest enticements that they offer is the Balance Transfer card where they let you move an existing debt to their card and charge you a much lower interest rate than you are currently paying.

How much could I save?

This depends on your existing debts and what credit card offers are available at the time, but here is an example. If you have £10,000 of debt on a credit card with an interest rate of 18.9% APR and you move it to a new card that is offering 0% interest on balance transfers for 12 months, then you would save nearly £1400 in interest in one year!
(these calculations assume that there is a 3% BT fee payable on the new card and that you pay £200 off your bill each month). To work out exactly how much you would save, check for yourself using our Balance Transfer Calculator.

But What is the Catch?

There is no 'catch' as such. The lenders just hope that you will become profitable for them over time, but your job is to ensure that you use the deal to your advantage by reducing the cost of your debts. Although there is no catch, there are a couple of important points you need to know.

• Most credit cards charge a fee for doing the BT - typically 2 to 3% of the balance you move. When working out how much you will save, don't forget to take this into account. One or two cards have no fee, a handful more have capped fees, but most now have uncapped fees.
• Never make purchases on a BT card! This is very important. If you do make purchases on a BT card they will be charged at the normal purchase rate and you will get charged interest each and every month. Any payments you make go towards paying off the 0% BT debt and not the purchases, so you can not pay it off without paying off your BT debt too!
• As with any credit card, you must continue to make your minimum monthly payments on time. Ideally you should use your 0% interest period as an opportunity to pay off your debts as quickly as possible, so pay as much as you can each month.
• Making many credit card applications can have a negative impact on your credit score. For more details, please read our guide to Credit Scoring.
• Make sure you know when the 0% offer period ends so that you can pay off your debt before the lender charges you interest.