How do balance transfers work?

balance transfers explained

Although credit and store cards can be a handy way to make purchases – with some providers even rewarding you for spending with perks such as cashback and air miles – managing monthly repayments and calculating accumulated interest can sometimes prove challenging. If this happens, it could be worth considering a balance transfer.


In the UK, we love our credit and store cards. Recent statistics show there are 31.5 million credit cards in the UK owing around £66.7 billion in total – which works out at an average of £2,469 per household. Yet, according to The Independent, around 18 million people received a default notice on their credit card bills last year, meaning they missed or underpaid repayments over a period of time. This can lead to additional charges, spiralling debt and become increasingly difficult to manage.

Why consider a balance transfer

For those of us who aren’t able to pay off our credit and store cards in full, balance transfers can be an effective way to consolidate and manage existing debts. With many providers offering 0% interest on balances transferred – thereby avoiding accruing any more interest on the amount you owe – this is the perfect opportunity to put more of your repayments towards reducing your debt. You may well be able to pay off what you owe sooner, giving you peace of mind.

How do balance transfers work?

Balance transfers let you move existing credit and store card debts onto a new credit card at a promotional interest rate, often advertised as 0%. This is for a set period of time, giving you the opportunity to set up monthly repayments with the aim of paying off the full amount by the end.

Each provider will have a different set of terms and conditions around how much you can transfer, how quickly you need to make the transfer and how this debt is paid off, depending on your individual circumstances.

Representative rates versus actual rates

When looking for a suitable balance transfer, the choice can be overwhelming. Price comparison sites are a good place to start, or you can speak to financial institutions directly.

However, when you submit an application, you may find you’re not eligible for the offer that’s advertised. This is because the interest rate shown is a representative APR, and both this and the length of time the rate applies are subject to status, and will depend on your personal circumstances and credit score. It’s important to make sure you compare options and choose the best one for your needs.

What to consider when choosing a balance transfer credit card

Balance transfers are about consolidating your debts, so work out how much you need to repay in total, how much you can afford in monthly repayments, and how long this will take to pay off. You want to find an offer that fits these requirements as much as possible.

The most important thing is to ensure you can meet the monthly repayments: if you miss one, the rate may be voided (depending on the terms and conditions of your card) and you don’t want to find yourself accumulating more debt as a result.

Ideally, you’d be able to transfer the full amount owing on all existing cards. However, if you need to do this in stages, start with the credit or store cards charging the highest interest rates as they will be accruing the most interest and pushing you further into debt.

Avoiding balance transfer pitfalls

Although balance transfers can be a great way to manage your money, you do need to read the small print. How long is the balance transfer interest rate valid? After this period it will probably revert to a much higher APR: will you be able to pay off the full amount in time?

Also, are there any fees or charges? Some providers may charge a balance transfer fee – normally a percentage of the transferred balance – so be sure to work this into your budget. And avoid using the card to make purchases or withdraw cash from an ATM as this is likely to incur much higher interest rates, and could affect your monthly repayments.

It’s worth bearing in mind that if your debt is larger than your credit limit, or you think you may not be able to pay it back over the initial low interest rate period, other ways of repaying debt could be better and cheaper for you, such as remortgaging or a debt consolidation loan. But it’s important that you get independent advice as soon as possible, from organisations like StepChange and Citizens Advice, which can help you to find the right solution.

Balance transfers can be an effective way to manage your money and reduce existing debt. By making sure you choose an option that fits your individual needs, you could find yourself with financial peace of mind sooner than you think.

  • alison-miller-square-02

    Alison Miller, Editor

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