Credit card balance transfers can be a confusing topic whether you're new to credit cards or have used many different cards in the past.
A balance transfer is a way of partially or fully paying the balance of one of your credit cards with another credit card. Balance transfers usually incur a fee and take from a few hours to a few days to complete.
When you do a balance transfer from one credit card to another, the balance on the first card reduces by the same amount as the second balance increases. The balance transfer fee will be charged by the credit card from which you are making the payment.
How does a balance transfer work?
To do a balance transfer, you need two credit cards. The receiving credit card is the one that has a balance you want to repay and the paying credit card is the one you will be making the payment with.
You can make a balance transfer for any amount you like as long as the paying credit card has a high enough credit limit. Balance transfers do not have to clear he entire balance of the receiving card - you can make a partial payment if you want to.
In order to do a balance transfer, you will need to head to the website or app of your paying credit card (or phone them... But really don't phone them - it's so much easier online!) There will be an option to do a balance transfer there.
You will need to enter the details of the receiving credit card - double check these as it is easy to get these wrong! Enter the amount you want to transfer and you should be good to go.
Once you complete the process, the balance transfer will show up as a pending transaction in your account and will be credited to the receiving credit card on receipt of the money.
The receiving credit card will receive a payment from the paying company's bank account that will be processed like any other payment you make yourself. There are no fees or charges on the receiving end of the transaction.
The process is a little different if you are applying for a credit card and want to do an immediate balance transfer.
In this case, you will fill out the balance transfer details during the application and it will go through if you are approved. Be careful with doing balance transfers during the application - if you are accepted for a lower credit limit than the amount you wish to transfer, the transaction will still go through but for a lower amount!
Usually introductory offers are valid for the first 90 days from the day you apply so you can do the balance transfer after you are accepted. Some credit card companies may choose to offer you a higher limit if you ask for a balance transfer on the application form so take that into consideration.
Benefits of doing a balance transfer
There are two main reasons why people do balance transfers: to save money by paying less interest or to clear all or part of the balance on the receiving credit card so that it can be used for another purpose.
Reducing the amount of interest you pay
The most common use and biggest benefit is the ability to reduce the amount of interest you pay on your balance. If you have a credit card with a lower interest rate than another and you are carrying a balance on the latter, if often makes good sense to move the balance across.
Often you will have a credit card that has a promotional long-term 0% offer which will make the saving even bigger. If not, you could apply for one to save yourself the extra cost.
Reducing the amount of interest you pay on your balance doesn't only reduce the cost, but also means your monthly minimum credit card payments will reduce (as long as you don't go out and spend again on the card you just paid off!)
Alternatively, you can choose to keep your monthly payments the same and significantly reduce the amount of time it will take you to repay the balance in full.
Freeing up a credit card
Less common than the first benefit, another great use of balance transfer is to free up space on a credit card for another use.
This is not something you should do frequently, but there are times when you can really use this to your advantage.
Imagine having to make a big purchase only to find that none of your credit cards have enough space to do the transaction. Using a credit card for a large purchase can be beneficial as you may be eligible for Section 75 protection if something goes wrong.
Your credit card might also have good rewards based on spend which you can make use of by using it for the purchase.
A balance transfer will cost you a small amount, but may still be worth it for the overall transaction.
Which credit cards offer balance transfers?
Virtually all credit cards in the UK allow you to do a balance transfer. This used to be a perk that only selected credit cards had 20 years ago but today you will struggle to find a provider that does not allow balance transfers.
Although most credit cards have the facility, it's best to seek out credit cards specifically designed for this. Most big credit card companies will make it easy for you and call these the Balance Transfer Card.
These cards will offer lower interest rates, long promotional deals where your interest is set to 0% and in some cases lower fees as companies compete for customers.
The business model of most credit card companies is to get their customers to build up a balance so that it can earn interest while that balance remains on the card. A balance transfer is the quickest way to build up that balance and it's stolen off one of the competitors!
How much can you balance transfer?
The amount you can pay using a balance transfer depends on 3 main factors: the paying credit card's credit limit, the balance on that card and any restrictions that the credit card company places on the amounts you can transfer.
Before taking the restrictions into account, the difference between the credit limit and the current balance will be the maximum you can transfer. So if your limit is £3,000 and you have an £800 balance, this maximum will be £2,200.
One caveat to the above is the balance transfer fee. The fee is immediately applied to your account when you do a balance transfer so the available balance will be reduced by the fee amount.
Some card companies restrict how much of the total credit limit you can borrow. Barclaycard, for example, will only allow up to 90% of your total credit limit to be taken up by a balance transfer. This is so that there is still a small amount of credit limit remaining for other spend.
Check the terms and conditions of your credit card to see whether there are any clauses limiting the size of a balance transfer.
Remember that like every other transaction, balance transfers are subject to credit and fraud checks. This means that your credit card company could block the balance transfer transaction or reduce the maximum amount you can pay at their discretion. If your account is well managed and you don't have any credit issues, this is quite rare.
How much does a balance transfer cost?
Balance transfers will attract a balance transfer fee and after the transaction completes begin accruing interest.
The balance transfer fees are almost always around 3% - some providers will charge 2.99%, 2.95% or other similar amounts to try and look better value on comparison tables.
In some cases, special balance transfer cards will have fees that are 2% or 1.5% or even no fee at all but these are very rare and usually restricted to new customers only when they first take out the card.
Be careful if you want to transfer less than £100 (although your credit card company may not allow you to anyway). Balance transfer fees often have a minimum level, usually set to £3 making the relative cost high for small amounts.
Once the balance transfer goes through, you will have to pay interest on the balance. Usually the balance transfer interest rate is slightly higher than the advertised one that applies to retail purchases.
Check the Summary Box to get your exact rates.
In a lot of cases, you will transfer a balance at a promotional rate. This will usually be 0% or a low rate of under 10% that will be fixed for a period of time. Market leaders will offer balance transfer deals that can be as long as 25-30 months or even longer but you will need top credit scores for those deals.
More frequently your credit card may offer 12 to 18 months of 0% interest on balance transfers. Check if you have any valid offers before doing the transfer!
Balance transfer rules and things to know
There are a few things you need to know before you go ahead and do your balance transfer:
- You can't balance transfer to a credit card by the same provider. Remember that some credit card companies have multiple different brands or card names so check to make sure they are not part of the same group or bank.
- Some credit card companies will only allow you to do a balance transfer from a credit card in your name. While this is not the case for all credit cards, check if you want to move a balance from a family member.
- Best rate balance transfer cards only accept people with an excellent credit rating
- Make sure you can afford the repayments after your promotional rate ends in case you forget or are not able to switch the balance.
- Avoid spending on the card you use to do a balance transfer. As the standard interest rate of a balance transfer is usually higher than that for regular purchases, your payments will be allocated to balance transfers when you make them. This means you will pay interest on your purchases until you clear your balance transfer balance.
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