What is a Balance Transfer Credit Card?
You know what’s annoying about credit card debt? Interest. We’ll spare you the references to Greek mythology, but credit card interest just keeps growing, despite your efforts to pay it off. In fact, according to The Money Charity, making the minimum monthly payment on a credit card with the average UK debt would take over 26 years to fully pay off. You might be wishing that interest would just stop so you can finally get your balance under control. But—good news—you may be able to do just that.
A balance transfer credit card moves your balance from one card to a new account with a lower interest rate. Plus, most balance transfer cards offer 0% interest on transferred balances during the introductory period. Some balance transfer cards also won’t apply interest to new purchases.
If you’re looking for a way to pay off credit card debt, odds are that you’ve seen advertisements for 0% interest balance transfer credit cards. We know how confusing credit lingo can be, and how frustrating it can be to devote time to finding a credit card that’s right for you, but end up overwhelmed and lost.
When you hear about a solution like a balance transfer credit card, it can seem too good to be true, or leave with even more questions. To help you make an informed decision, we’ll explain what you need to know about balance transfers, how you can get one, and how they can impact you as you build credit.
What Are the Benefits and Disadvantages of Balance Transfer Cards?
Balance transfer credit cards are advertised heavily. While you may know about some of the benefits, let’s take an objective look at the pros and cons of these cards:
Benefits of Balance Transfer Credit Cards
If you’re a savvy card user, balance transfers can be a great way to pay off large balances.
- Pay no interest during the introductory period: The most obvious benefit of most balance transfer credit cards is that you won’t need to pay interest on your balance, or even new purchases in some cases.
- Consolidating debts can be convenient: Combining your credit card debt into a single account can make it easier to manage, reducing your risk of missing payments and damaging your credit score.
- You can improve your credit score: Balance transfer credit cards give you two opportunities to build your credit score. First, they allow you to pay down your existing debt, which can benefit your credit score. Secondly, a balance transfer credit card can help you reduce your credit utilisation ratio, which can also boost your credit score.
Drawbacks of Balance Transfer Cards
Balance transfer credit cards don’t come without risks, and for some credit card users, those risks may outweigh the benefits.
- Transfer fees can be costly: While the fee to transfer your balance from one card to another may seem small at around 3-5%, they can add up. If you’re transferring the average UK household’s credit card debt—£2,350 as of May 2023—transfer fees could cost you an additional £117.
- Introductory periods encourage spending: If you don’t improve your credit card habits before transferring your balance, the 0% interest rate could encourage you to spend more than you would otherwise. When you’re trying to pay off debt, this is a move in the wrong direction.
- Late payments carry even more risk: In addition to damaging your credit score, missing monthly payments on a balance transfer card could see you losing your promotional interest rate.
Keep in mind that credit card companies only offer interest-free cards because they’re confident the average user won’t pay off their balance by the end of the introductory period. Thus the saying: ‘if something is free, you’re the product.’
FAQs About Balance Transfer Credit Cards
Now that you know more about balance transfer cards, you may be wondering about the terms of these credit cards. Let’s take a closer look at some additional common questions about balance transfer cards.
What Credit Score Do I Need For a Balance Transfer Credit Card?
There are no hard-and-fast rules about what credit score you need for a balance transfer credit card. A credit score of 670 is a common minimum, but some cards may require a higher credit score. Conversely, someone with a score lower than 670 could qualify depending on other factors that influence your credit score, like your debt-to-income ratio, payment history, and credit history.
If you’re not sure that you meet the eligibility criteria, look for balance transfer credit cards that offer an eligibility screening. This way, you’ll be able to gauge your eligibility without having to undergo a hard credit check, which can temporarily damage your credit score.
How Long do Introductory Periods Last on Balance Transfer Cards?
Most cards’ interest-free promotional period lasts between 6-21 months. These lengths can also vary depending on the type of transaction: new purchases made with the card might only be interest free for the first 3-6 months, while the balance transfer may remain interest free for 21 months. Some cards offer 0% APR on balance transfers for as long as 32 months.
What Happens After A Balance Transfer Card’s Introductory Period?
After an introductory period, your card will begin to charge regular interest on your balance or purchases. If you don’t pay your balance off in full before the introductory period ends, you can rack up even more interest on your outstanding balance. Therefore, an interest-free introductory period could damage your credit score in the long run if you aren’t careful.
Start Building Your Credit the Right Way with Pave
Balance transfer credit cards’ interest-free introductory periods aren’t a long term solution to building credit or paying off debt. Like with any other credit card, whether it hurts your credit or helps your credit all depends on how you use it.
A balance transfer card might not be the best tool available to you, but the jargon you see when looking for a new credit card can leave you wondering where you should even begin. At Pave, we’re dedicated to making that process easier. Through bills monitoring, personalised credit fixes, and payment reporting, we’ve helped hundreds of thousands of people just like you improve their credit health without using risky new credit cards.