Credit Card & Balance Transfers
Balance transfers do exactly what they say on the tin. You can transfer your balance from one credit card directly to another provider. It can be a great way to make the most of your credit. It allows borrowers to potentially gain access to more funds, reduce payments and even build their credit score.
One of the main features that draws people to balance transfer products – is that they can drastically reduce your interest rate. This allows you to either pay less every month or lower their credit card balance at a faster rate.
Unfortunately, balance transfers are currently only available for credit cards. So for likes of payday loans and bad credit loans it’s not something that’s materialised. However, there is a product very similar to the design of a balance transfer that’s available, this is called a consolidation loan.
Let’s take a closer look at how balance transfers work and how they might be able to benefit you.
How Do Balance Transfers Work?
Banks and credit card providers typically offer new customers some great introductory offers. These usually come in the form of an interest-free time period on the transferred balance.
If you were to Google ‘ interest-free credit card’, you’d be presented with a plethora of options to compare with. They vary from 3 months to 24 months of 0% interest credit, so it’s definitely worth shopping around!
When you apply with any major credit card provider, you’ll normally be asked if you’d like to transfer a balance from another card. If you select ‘yes’, the lender will do all the hard work for you. As long as you give them all the details they need of the account you want to transfer, they’ll be able to contact your current supplier and arrange a quick transfer of funds.
Also, dependent on your credit card balance, there could be a one-off transfer fee you’ll need to pay.
Whilst it’s completely possible for some credit card applicants to have an interest-free period, for others it’s not guaranteed. Use comparison websites to do some digging to see what your options are.
A good time to start looking at a balance transfer is when your interest-free period comes to an end. You might be able to transfer the whole balance (or at least part of it) to a 0% credit card, this can save you a lot of money in interest payments. As there’s a fair few credit cards out there to use, you could even turn this into a rolling habit. Each time your 0% term ends just move to another 0% interest card.
Considering a balance transfer? Here are a few do’s and don’ts to think about:
Do This With a Balance Transfer:
Set up a direct debit –
The safest way to ensure that your minimum payments are consistently met is to set up a direct debit. As you’re probably aware – your monthly payment will be taken automatically, so you don’t have to worry about forgetting to manually pay.
Some people choose to set up direct debits with a set amount of money per month. Most tend to pay the minimum payment, and then overpay whenever they can afford to do so.
Get a no-obligation quote (if possible) –
When you apply for any form of credit, there is a risk that you won’t be accepted. This can have a detrimental impact on your credit score, so whenever possible, try to obtain a no credit check quote. This will allow you to see whether you are likely to be accepted or not, and it can really save you some hassle further down the line.
Search for the best options –
As with any financial product, it’s crucial that you search for the best options. There will always be one provider who offers a deal that’s just too good to pass up!
Have a root around various comparison websites, normally these are a good go-to and can save you time. If you have the time to search each lender individually, then, most now offer a service showing how likely you are to get a yes from them.
Don’t Do This With Balance Transfers:
Assume that you’ll not have to pay interest –
The main appeal of transferring your balance is to reduce the interest payments. Ideally you would want 0% – it’s never safe to assume that you definitely will be offered an interest-free period.
However, don’t let this put you off – even if you can’t find any 0% interest options, you should still be able to find one that offers a significant reduction in rates.
Missed payments –
This one’s a given! Make sure you make (at the very least) your minimum payment to avoid facing potential charges or even losing out on your 0% privileges.
Close your old card –
If you get given the choice, you should keep your old card open (don’t rack up another balance, though!). Credit reference agencies take your credit utilisation into consideration, basically, how much of your total available credit you use over the course of a month.
By keeping your old account open, whilst maintaining a 0 (or very low) balance, you’re lowering your utilisation, and subsequently increasing your credit score.