Guide to Balance Transfer Credit Cards
The credit and banking industries are filled with unsavoury players so when you’re researching which card to go with, it’s often hard to know who you should trust. We’ve developed this guide as a starting point for those just beginning to build up their credit profiles but who already have some revolving credit card debt.
Here are some of the most common questions when it comes to balance transfer focused credit cards.
What is a balance transfer card?
This is more or less marketing lingo. Cards that are sold under this title are not only used for balance transfers. Instead, they are referred to using this moniker because of the generous features they offer if you were to use them for a balance transfer (transferring one revolving line of credit to another card).
Balance transfers in general often carry different terms than if you were to just use a card for purchasing goods and services. For example an interest rate on purchases for a card might be 24% but the card issuer might outline a higher or lower rate for balance transfers to the card. So when you see a card marketed as a balance transfer card, it is still a credit card, it may just be a better choice if you are searching for cards with good balance transfer terms.
What is a good interest rate for a balance transfer?
You will see rates all over the board for this and ultimately, if you are paying 15-20% interest, you are doing ok. Some cards have rates much higher than this but the thing you want to look for if you are searching for a card with these features are introductory interest rate deals that can help you save money on your balance. After all, if you are searching for a balance transfer card, odds are you already have a balance you are trying to pay off.
What is a good introductory rate?
Do your homework here because there are offers as low as 0% APR for the first year or the first 6 months you have your card. That could mean a lot of savings depending on what your current interest rate is. Some cards only offer this on balance transfers while others only offer this on regular purchases (and not other stuff like balance transfers or cash advances).
You just have to read the fine print. You want to see the interest rate for balance transfers and if you can’t find anything that says that, chances are the card doesn’t have a promotional rate for those types of transactions.
It good strategy is to use credit building credit cards which are pre-paid cards used for building credit. These often have no interest rates similar to 0 purchases credit cards.
What should I watch out for when applying for these cards?
One of the biggest pit falls when getting any new card is the interest rate. Make extra sure that you understand what your rate is and how that will impact what you have to pay should you sign up for the card and transfer a balance to it. Rewards credit cards can seem appealing but these are often the ones with the highest interest rates.
The other thing to watch out for are annual fees. Many cards charge an annual fee to use them and this can range from a manageable £100 to well over £600 per year. Banks may lure you in with cashback credit cards with fees that are even more than you could earn spending. Depending on your income that may or may not make a difference to you but be aware that annual fees exist. It doesn’t make any sense to transfer £600 to a new card if the annual fee is £400. Then you’re on the hook for £1000 plus any interest charges.
How hard is it to get a balance transfer card?
Cards marketed as balance transfer cards have an application process that is no different than any other similar card. Issuers take into account your credit history, your credit score, your income, and other factors to determine if you are a good borrower. Often times the cards with the higher fees tend to be easier to apply for than the most popular credit cards without fees.
The most important thing to remember is you should use credit responsibly. That means not spending money you don’t have and paying off your credit card balances at the end of each month. Transferring balances to another card should be used as a means to save money in the long term on interest charges and not as a way to buy time before your next payment comes due.