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What is a balance transfer?
A balance transfer is a type of credit that allows you to transfer your balance from a card, or multiple cards onto a new card. They can come with low – or even 0% promotional rates, which can help you clear your debt faster by giving you time to pay off the principal amount you owe without adding interest to your balance for an agreed upon amount of time.
Balance transfers can also help you consolidate multiple balances so you only need to keep track of one monthly payment.
How does it work?
Typically, you transfer your outstanding balance, or balances to a new card. The card should be from a new lender to any of the debts you are transferring.
Once you’ve found the right card for your situation, apply for it – don’t forget to check your credit score before making any new applications for credit. After you’ve been approved, your new card issuer will typically pay down the balance for you – but you will need to check this is the case.
The balance transfer will not be instant, so make sure you continue making payments on your accounts until you have confirmation that the balance has been transferred.
Can I transfer any other balances?
Normally, balance transfers are for credit card balances, but there are lenders who may allow you to transfer other types of debt, such as loans. You will need to check with the provider before making an application.
How much does it cost?
Most balance transfer cards come with a fee that’s usually between 0-5%. This means that if you want to transfer $5,000 and the fee is 2%, you’ll pay $100.
It’s important to figure out how much you’ll save by transferring your balance – and make sure to factor in the fee to work out if it’s definitely the right step for you.
Will it affect my credit score?
Applying for a balance transfer card will likely involve a hard check against your score, which will cause it to drop temporarily. However, if you make all of your repayments on time and keep your score in good standing outside of this credit application, you should see it begin to rise again.
Ideally, you’ll use the introductory period of your balance transfer offer to pay down your existing balance without interest being added on, which could cause your score to rise even further, by minimizing the amount of credit you’re using.