Balance Transfers: the do’s and don’ts
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 their payments and even build their credit score.
The main feature that draws people to balance transfer products is that they can drastically cut down their interest rates. This allows them to either pay less every month or reduce 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 a no go. However, consumers can still make use of a consolidation loan if they choose to do so, which can function in a very similar way.
Let’s take a closer look at how balance transfers work and how they might be able to benefit you.
How to balance transfers work?
Many banks or credit card providers offer new customers some incredible introductory offers. These usually come in the form of an interest-free period of time on the transferred balance.
If you were to Google ‘ interest-free credit card’, you’d be presented with a plethora of lending options. They vary from 3 months to 24 months of interest-free credit, so it’s definitely worth shopping around!
When you apply for any major credit card, you’ll normally be asked if you’d like to transfer a balance from another card. If you select ‘yes’, the bank will do all the hard work for you. As long as you give them the correct details for your old account, they should be able to contact the previous supplier to arrange the quick transfer of funds.
Don’t worry – if you miss out on the chance, you should be able to give the bank a call to get the process started.
About that interest
Whilst it’s completely possible for some credit card users to avoid paying interest entirely. However, it’s not something that you should take for granted. It’s not guaranteed that you’ll be accepted for a credit card, or that the interest-free period will apply to you.
The best time to start looking at balance transfer offers is when your interest-free period of lending 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, allowing you to contribute more to your repayments each month.
Interested in a balance transfer? Here are a few do’s and don’ts:
Set up a direct
The safest way to ensure that your minimum payments are consistently met is to set up a direct debit to be paid from your bank account. Your payment will be automatically taken on a set date EVERY month, so you don’t have to worry about forgetting to make that call.
You may even choose to set up a direct debit for a set amount of money. I personally choose to pay the minimum payment, and then overpay whenever I can afford to.
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!
Not everyone has a free, no-obligation comparison tool like LoanBird, though, so you may have to spend a fair bit of time searching around.
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 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.
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.
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!). CRAs take your credit utilisation into consideration, or 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.