While there are advantages to using a balance transfer card, there are also a number of factors to watch out for. These include the following:
Transfer fees: Balance transfer credit cards typically charge a fee which is calculated as a percentage of the amount you transfer – usually around 3%. As an example, if you transferred a balance of £5,000 and paid a fee of 3%, a total of £150 would be added to your balance.
Depending on the amount of debt you have and how long it will take you to pay off, you may find it cheaper to choose a balance transfer card with a shorter interest-free period and a lower fee.
Transfer limits: Most balance transfer credit cards require you to carry out your transfer from the old card(s) to the new one within a set timeframe – typically 60 or 90 days. Transfers made after this point may not qualify for the 0% offer and you may be charged a higher transfer fee.
There is usually a minimum transfer amount of around £100, while the maximum transfer is capped at 90% or 95% of your credit limit so that you don’t ‘max out’ your card straight away.
Follow-on interest rates: It is important to check the ‘follow-on rate’ – that’s the rate of interest you will be charged if you still have a balance on the card once the 0% deal ends. Rates vary but are often in the region of 25% APR (variable) on standard cards. An interest rate like that is going to sting, so try to clear your balance before it kicks in.
Minimum payments: Minimum monthly repayments are typically set at exceptionally low levels – often around 1% to 2.5% of the balance. If you only pay this amount each month you are unlikely to be able to clear your balance before any introductory 0% offer ends, and are likely therefore to pay a lot more in interest.
Always pay off more than the minimum each month if you can.
Penalties for missed payments: It’s also important to make your monthly payments on time. If you don’t, or you miss a payment completely, not only will this affect your credit rating, you risk losing any 0% promotional offer you have taken advantage of. Charges of around £12 also usually apply.
You can’t transfer within the same bank: You usually won’t be able to transfer a balance from one card to another within the same banking group or issuer. If, for example, you have an existing balance on an HSBC card, you won’t be able to move it to a First Direct card as both banks are part of the same group.
