If you have existing credit or store card debt and you’re being charged interest, a balance transfer credit card could save you money. They enable you to move debt onto another card that offers an interest-free (or low interest) period on the money transferred.
This can help you pay off your debt quicker and cheaper.
Here’s an example of how long it would take, and how much it would cost you to pay off £2,000 of credit card debt, with an interest rate of 21.9% versus 0%.
It assumes you’ll repay £100 a month.
| Credit card 1 |
Credit card 2 |
|
|---|---|---|
| Starting balance | £2,000 | £2,000 |
| Monthly repayments | £100 | £100 |
| Interest rate | 21.9% | 0% |
| Time taken to repay balance | 25 months | 20 months |
| Total amount paid | £2,452 | £2,000 |
| Interest paid | £452 | £0 |
| Starting balance | Starting balance | |
|---|---|---|
| Credit card 1 |
£2,000 | £2,000 |
| Credit card 2 |
£2,000 | £2,000 |
| Monthly repayments | Monthly repayments | |
| Credit card 1 |
£100 | £100 |
| Credit card 2 |
£100 | £100 |
| Interest rate | Interest rate | |
| Credit card 1 |
21.9% | 21.9% |
| Credit card 2 |
0% | 0% |
| Time taken to repay balance | Time taken to repay balance | |
| Credit card 1 |
25 months | 25 months |
| Credit card 2 |
20 months | 20 months |
| Total amount paid | Total amount paid | |
| Credit card 1 |
£2,452 | £2,452 |
| Credit card 2 |
£2,000 | £2,000 |
| Interest paid | Interest paid | |
| Credit card 1 |
£452 | £452 |
| Credit card 2 |
£0 | £0 |
This may sound like a throwaway tip, but it’s vital to check the terms before applying for a balance transfer card. Make sure you’re aware of the following:
Like other types of credit cards, you need to make a minimum monthly repayment on balance transfer cards. It’s important to keep up with this, otherwise you’ll have to pay a fee. Missed or late payments can also negatively impact your credit score.
While you only need to make the minimum repayment, the more you’re able to repay each month the quicker you’ll be able to clear your debt.
The easiest way to make sure you keep up with repayments is to set up a Direct Debit.
You can also make multiple repayments throughout the month. This means that if you have a bit of extra cash available, you can use it to pay off the debt before you’re tempted to spend the money elsewhere. You may find chipping away at the debt throughout the month helps you pay it off faster.
Explore: How to avoid credit card charges
One of the benefits of a balance transfer card is that it enables you to repay your debt in a cost-effective way.
Some balance transfer credit cards also offer a 0% interest period on purchases, which may be useful if you’re planning to use it to spend.
The interest-free period for purchases is typically much shorter than the interest-free period for balance transfers. Once the interest-free period for purchases ends, you may have to pay interest on the balance if you don’t repay it in full each month.
You may also be charged if you use the card to withdraw cash. This is known as a cash advance fee.
When the 0% interest period on a balance transfer credit card ends, a new interest rate will kick in. Make a note of the date and aim to pay off your balance before then.
For example, if you have £2,000 of credit card debt and a 20-month interest-free period, you could set up a Direct Debit to repay £100 a month. Assuming you didn’t use your credit card during that period, you’d clear your debt without paying any interest.
If you have an outstanding balance when the interest-free period ends, you’ll be charged interest.
If you still have money left to repay at the end of the interest-free period, review your options and consider moving your debt.
You may want to look at other balance transfer credit cards at that time, which could offer you a further 0% interest period.
