- A balance transfer involves moving the outstanding balance from one credit card to another.
- It is done to take advantage of lower interest rates or promotional offers on the new card.
- Careful consideration of terms and fees is important before proceeding with a balance transfer.
How does a balance transfer work?
When you have a credit card balance and find another card with a lower interest rate or promotional offer, you can initiate a balance transfer. Here's how it typically works:
1. Find a suitable credit card: Research and compare credit card offers to find one with lower interest rates or attractive promotional terms for balance transfers.
2. Apply for the new card: Submit an application for the new credit card and provide the necessary information, such as personal details and current credit card balance.
3. Transfer the balance: If approved, the new card issuer will coordinate the transfer of the outstanding balance from your old credit card to the new one. This process may involve contacting your old card issuer and providing the required information.
4. Enjoy potential savings: With the balance transferred to the new card, you may benefit from lower interest rates or a promotional period with zero or low-interest rates. This can help you save money on interest charges and pay off your debt more effectively.
Real world example of a balance transfer
Let's say you have a credit card with a £5,000 balance and a high-interest rate of 20%. You discover another credit card offering a promotional balance transfer offer with 0% interest for the first 12 months. You decide to take advantage of this offer and initiate a balance transfer. After the transfer, you now have the £5,000 balance on the new card with no interest charges for the promotional period. This gives you an opportunity to pay off the debt faster and potentially save on interest payments.
The bottom line
A balance transfer is a financial move that involves transferring the outstanding balance from one credit card to another, usually to take advantage of lower interest rates or promotional offers. It can help you save money on interest charges and consolidate your debt. However, it's important to consider the terms, fees, and any potential impact on your credit score before proceeding with a balance transfer. Proper research and understanding of the terms and conditions will help you make an informed decision that aligns with your financial goals.