Simply Calculated

Balance transfers explained

A balance transfer moves what you owe on one card to another, usually at 0% for a set number of months, for a one-off fee. Used well, it means every payment goes off the debt. The trick is clearing it before the 0% ends.

How it works

You apply for a new card with a balance transfer offer, and it pays off your old card. You then owe the new card instead. During the 0% period no interest is charged on the transferred balance, so every pound you pay comes off the debt. When the period ends, whatever is left is charged at the card’s standard rate, often 20% to 35% APR.

Whether you’re accepted, and for how long a 0% period, depends on your credit record. The longest offers usually go to people with the strongest records.

The transfer fee

Most transfers carry a fee, typically a few per cent of the amount moved, added to your balance on day one. A 3% fee on £5,000 is £150, so you start owing £5,150. A longer 0% period often comes with a higher fee; a shorter one can be fee-free. Compare the fee with the interest you’d otherwise pay over the same time.

An example

You transfer £5,000 with a 3% fee and 18 months at 0%, then the card’s rate is 24.9% APR. Paying £200 a month:

  • you start at £5,150 and pay no interest for 18 months
  • £1,550 is left when the 0% ends
  • it’s cleared in month 27, with £140.58 of interest and £5,290.58 paid in all

Paying £150 a month instead leaves £2,450 when the 0% ends, and takes until month 38 with £501.15 of interest.

Clearing it within the 0% period

To clear it before any interest is charged, divide the starting balance by the number of 0% months. In the example, £286.12 a month (the last payment £285.96) clears £5,150 in 18 months, with no interest at all. That costs only the £150 fee.

If that’s more than you can afford, any amount above the minimum helps. Before the deal ends, you may be able to transfer what’s left again, but that means another fee, and new offers aren’t guaranteed.

Things to watch

  • Missing a payment can end the 0% deal early, and the standard rate applies from then on. A direct debit for at least the minimum avoids this.
  • New spending on the card may be charged at a different rate. Your payments usually go to the most expensive part of the balance first, but the 0% part can stay with you longer than you expect. It’s simplest not to spend on a balance transfer card.
  • Transfers usually have to be made within a set time of opening the card to get the offer.
  • Credit limits may be lower than your balance, so you might only be able to move part of it.

We don’t recommend cards or providers. MoneyHelper explains what to check before you transfer a balance.