Is Switching to a Balance Transfer Credit Card the Right Move for You?

There’s no denying that credit card debt can be a real pain. 

But if you're trying to save some money on high interest rates, a balance transfer credit card could be just what you need. Basically, a balance transfer card allows you to transfer the balance from a high-interest card to a new one with a lower (or sometimes even 0%) interest rate for a set period. 

Sounds good, doesn’t it? 

But, like anything, it’s not always a magical fix. That’s because it only works if you use it the right way. 

Let's dive in to find out if a balance transfer credit card is the right move for you.

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How to Calculate if a Balance Transfer Will Save You Money

Before jumping into a balance transfer, you need to understand the full picture. The key factors are:

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The balance transfer fee: This is a percentage of the amount you transfer. Typically, it’s anywhere from 3% to 5%, but some cards offer no fee at all.

The promotional interest rate: This is the interest rate that  you’ll pay during the introductory period. For a 0% balance transfer, this is great, but it’s only temporary.

The standard interest rate: Once the introductory period ends, the interest rate on your balance will shoot up to the standard rate, which could be as high as 20% or more.

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Here’s how you can calculate if a balance transfer is actually worth it:

1. Work out how long it will take to pay off your current card. If you’re only making the minimum payments, it could take ages to clear your balance.
   
   
2. Compare the total interest cost on your current card with the fees and any potential interest on the new card. Make sure you factor in the balance transfer fee.
   
   
3. Think about any other costs, like annual fees or late payment charges, which could eat into any savings you make.

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With the above info in mind, let’s run through an example to make it clearer. 

Suppose you have £2,000 on a credit card with a 20% APR, and you’re thinking about moving the balance to a card that charges a 3% fee but offers 0% interest for 12 months. 

On your current card, you'd pay £400 in interest over a year. 

But on the new card, you’d pay a £60 fee (3% of £2,000) and no interest. That means you’d save £340, if you can pay off the balance before the 12-month period ends that is. 

Not bad, right?

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When a Balance Transfer Card Is A Good Idea

A balance transfer credit card can be a great choice when the savings from lower interest are bigger than the transfer fees. If the transfer fee is £60 but you’d otherwise pay £400 in interest, that’s a no-brainer.

It’s also a wise move if you can realistically clear the balance before the intro offer ends. The point is to pay off as much as possible while the interest is 0%.

Keep in mind that you won’t use the new card for more spending. After all, this is about clearing debt, not increasing it.

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When a Balance Transfer Might Not Be Worth It

That all being said, a balance transfer card isn’t always the right move. For instance, it’s not a good idea if the transfer fee is so high that it cancels out any potential savings. 

It’s also not a wise move if you’re unlikely to pay off the balance before the 0% period ends. That’s because if you can’t clear the debt quickly, you could end up paying more interest than you saved. If you’re unsure, a balance transfer calculator can help you see if it’s the right move.

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Five Things to Look for When Shopping for Balance Transfer Credit Cards

When you start looking at balance transfer cards, here are five key things to keep an eye on:

1. A longer 0% period, which means you have more time to clear your balance without paying any interest.
   
   
2. Cards with no-fee transfers.
   
   
3. A standard APR after the intro period. This will be important if you don’t manage to pay off your balance before the 0% interest period finishes.
   
   
4. The required credit score. Each provider has different credit score requirements, so make sure you’ll qualify before applying.
   
   
5. Closely read the fine print. Some cards offer rewards or cashback, but some come with penalties for missed payments or high charges. 

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If a Balance Transfer Isn’t Right for You, Consider These Options

If a balance transfer card doesn’t seem like the best option for you, don’t worry because there are other ways to tackle your debt:

• Debt consolidation loans are another option, offering you a fixed repayment plan with a lower interest rate.
  
  
• You could negotiate with your current credit card provider to see if they’ll reduce your interest rate. It’s always worth asking.
  
  
• If you’ve got some budget wiggle room, accelerate your repayments by cutting back on non-essentials. A bit of discipline and planning could help you clear your debt without switching cards.

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The Bottom Line: Balance Transfer Credit Cards Can Help You Save, But Require Careful Planning

To wrap everything up, balance transfer credit cards can be a brilliant way to save money and pay down debt, but only if you use them wisely. 

They’re not a magic solution, and it’s important to weigh up the costs and make sure that you can pay off the balance in time.

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