Is a balance transfer worth it?

How a balance transfer works

You apply for a balance transfer card and ask it to pay off some or all of your other card. The amount moved, plus a fee, becomes the new card’s balance, and no interest is charged on it until the 0% period ends. Then whatever’s left is charged at the new card’s standard rate.

• The fee is usually a few percent of the amount moved. One major bank’s card charges 3.09%, with a minimum of £5. Some deals charge less, or nothing, usually for a shorter 0% period.
• The 0% period can be anything from a few months to around three years. Longer deals often charge a higher fee.
• The deadline: the transfer normally has to be made within a set time of opening the card, such as 60 days, to get the 0% rate.
• The limits: how much you can move depends on the new card’s credit limit, and you can’t usually move a balance between cards from the same banking group.

Worked example

£3,000 on a card at 24.9% APR, paying £150 a month, against moving it with a 3% fee (£90) to a deal at 0% and 24.9% after that:

Once the deal is long enough to clear the balance before the 0% ends, the only cost is the fee, so a longer deal stops saving anything more. A longer deal with a higher fee can then cost more: 18 months at 3.5%, for example, costs £120 in all, against £104 at 3%.

Compare your own deal →

Clear it before the 0% ends

The surest way to get the most from a transfer is to pay enough to clear it within the 0% period. Divide the balance, plus the fee, by the months at 0%: £3,090 over 12 months is £257.50 a month. Paid that way, the £90 fee is the whole cost, against £793 of interest staying put.

If that’s more than you can manage, pay what you can and note the date the 0% ends. What’s left then is charged at the card’s standard rate, which can be as high as the card you left. Some people move the balance again at that point, but there’s usually another fee, and another credit check.

The catches

Missing a payment can end the deal. A late payment, or paying less than the minimum, can end the 0% rate early and add a fee. A direct debit for at least the minimum avoids it.

New spending costs more. Purchases on a balance transfer card are usually charged the purchase rate, and your payments go to the part of the balance with the highest rate first. So the new spending is paid off before the 0% balance, which is left to shrink later. Keeping the card just for the transfer keeps it simple.

A small balance may not be worth much. On £500 that you’d clear in six months anyway at £100 a month, a 3% fee (£15) saves £30 of interest: £15 better off, for a new card and a credit check. Run the figures before you apply.

Your old card stays open. Unless you close it, the credit is still there to use, and anything spent on it is charged its full rate.

Getting help

If you can’t get a balance transfer card, or the payments are hard to keep up with, talk to your card provider: it has to treat you fairly and consider what you can afford. Free, confidential debt advice is available from MoneyHelper, StepChange, National Debtline and Citizens Advice.