A balance transfer is exactly what it says on the tin; you transfer the balance of your debt from one lender to another. Generally speaking, the term is used to describe the transfer of balance between credit cards but it is also possible for the balance of a loan or bank account to be transferred so that you benefit from a lower interest rate. The lower interest rate – usually 0% – is always for a set period only, usually six months.
In effect what you are doing is paying off the balance on one credit card with another card, which makes sense when you move the outstanding balance from a high interest rate card to a card with a lower rate.
Transferring the balance between cards like this is one form of debt consolidation.
Don’t let the zero interest rate lull you into a false sense of security though; you should still aim to pay off as much of your debt as possible. And don’t forget that the more of the debt you repay during the interest free period the more quickly you will clear the debt – and more cheaply too.
In fact, once you have your card, it’s a good idea to set up a direct debit to pay a regular sum off the balance each month. Late payments can jeopardise your 0% deal, so make sure you transfer the money in plenty of time each month
Remember too that usually it is only the transferred balance that is interest free – any new purchases will attract interest at the current rate.
Make sure you read the small print – some credit card companies also charge a balance transfer fee to take over your outstanding debt, make sure you know the amount payable if this is the case.
Here are some useful links for zero interest transfers:
- Uswitch.com: compare 0% balance transfers
- Virginmoney.com: currently offering 16 months 0% interest on balance transfers. The rate applies to transfers made in the first 60 days and a handling fee of 2.98% applies.
- moneysavingexpert.com: more info about the Virgin 16 month offer
- ukcreditcards.com: a credit card comparison site that compares a wide range of 0% transfer options
- stoozing.com: very useful balance transfer savings calculator