Credit Card Basics : Balance Transfers

Balance transfer offers are a mainstay of credit card marketing, and while their popularity has declined somewhat over the last few years, they are still one of the main things many people consider when deciding on a new card.

The basic idea behind a balance transfer is to transfer debt onto your new card from elsewhere (usually a previously held card) in order to benefit from a lower interest rate, resulting in either lower repayments or aq quicker clearing of the debt.

0% Deals

One of the most common transfer deals is a rate of 0% for a set period. Back when balance transfers where first introduced, this introductory period was typically for 6 months, but nowadays 12 or even 15 months is common.

A few years ago, it was a widely known 'trick' to repeatedly transfer a debt from one 0% card to another, effectively avoiding paying interest on the balance indefinitely. This loss of interest payments cost card issuers dearly, and so a balance transfer fee was introduced whereby typically 3% of the amount transferred was charged to the card account. This somewhat defused the popularity of serial balance transfers, although that technique can still result in savings.

Low Rate For Life

Another form of balance transfer is the low rate, long term offer. This will typically see a rate of around 5% being charged on transferred balances, either for a period measured in years, or until the debt has been cleared completely. This kind of deal has never been as popular as the 0% offer, although it is good for people who intend to clear their debt over a lengthy period while paying less in interest and avoiding the hassle and charges associated with repeated 0% balance transfers.

Don't Mix With Spending!

Are there any drawbacks to balance transfers? Well, apart from the previously mentioned balance transfer fee, there is also one common mistake that people make: using the same card for balance transfers and purchases. This should be avoided, as while you have some of the transferred debt still in your account, anything you spend using the card will attract the full interest rate, even if you repay in full what you spend each month - all your repayments will go solely towards reducing the transfer amount rather than any purchases debt you build up. For this reason you should always use separate cards for balance transfers and spending if you want to get the most out of the deal.

Featured Balance Transfer Cards:

 Card  Balance Transfer Offer  Handling Fee  Standard Rate
HSBC Card 0% for 23 months 3.3% of the transfer amount 17.9% Apply >>>
Halifax 20 Month Balance Transfer 0% for up to 20 months 3% 16.9% Apply >>>
MBNA Platinum 0% for 19 months 2.9% handling fee on balance transfers 16.7% Apply >>>

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