Save Money with the Credit Card Shuffle

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• Published: 13 Feb 2009 in Money and Credit Cards

Confused.com guide to credit card balance transfers 

If your credit card bills are piling up and paying them off is becoming a problem, transferring the balance to a cheaper credit card (i.e. one with a much lower rate of interest) could reduce your repayments. It’s time to take to the floor for the credit card shuffle... 

What is a balance transfer?  

Simply put, a balance transfer is transferring debt from one credit card to another. If you're paying any kind of interest on your existing credit card, switching the balance to a new card offering 0% Annual Percentage Rate (APR) will reduce your monthly repayments. 

Transfer fees and discount periods 

In general, zero percent APR credit cards with no balance transfer fee have a shorter discount period (typically six months or less), after which the balance is repaid at the card’s standard APR. This may be beneficial if you're happy to switch your balance transfer from card to card regularly (a practice known as ‘tarting’), or plan to repay in full before the standard interest rate kicks in. 

Longer-term 0% credit cards usually charge a fee (often around 3% of the balance), but if you’re paying back over a longer period, you could save more than the fee thanks to the reduced repayments. This type of deal could also be suitable if don't want to switch credit card every few months. 

How to apply for a balance transfer 

When you apply for a new card, there’s usually a section on the application form where you tell the new provider if you want to transfer a balance (and how much). Some cards will ask for details of your old card when you apply for the new one, but most will set up your new card first and then allow you to transfer balances to it. 

How much money can be saved?  

This depends on the amount you transfer, your current Annual Percentage Rate and how much you plan to pay each month.  

If you only pay the minimum amount, your monthly payments should drop slightly, as you're no longer paying interest on the balance - for the term of the deal. However, if you can afford to pay off more than the minimum payment, you should repay the debt quicker.  

As you're not paying any interest on a 0% deal, all of the repayment you make each month goes towards the balance, rather than part of it paying interest, so you'll clear your debt faster. 

How much should you pay each month?  

If you want to clear the debt, you should consider paying off as much as you can afford every month. However, if you have other debt that is attracting a higher APR, it’s best to pay that off first. If you don't think you'll be able to pay off the whole balance on your credit card before any 0% deal runs out, you could switch again to avoid paying high interest rates.  

Alternatively, you could transfer your balance to a card that charges a low rate on balance transfers for the life of the balance (rather than a 0% deal for 10 months which then reverts to 17.9%, a card may charge, say, 5.9% until the balance is repaid in full, even if this takes a couple of years or more). 

The credit limit 

If the credit limit you’re being offered isn’t high enough, it may be worth transferring just part of your existing balance to the new card. Even if you can't reduce your total interest charges to nil, paying less interest is still better than paying more. 

More than one balance transfer  

The number of times you can transfer a balance is unlimited, in theory at least. However, you may have to pay balance transfer fees each time and it may damage your credit score if you constantly transfer balances without actually paying off any of the total amount owing.  

It's also important to remember that, as a rule, credit card providers won't let you transfer a balance from one of its own cards to another, even if they are differently branded. 

Spend, spend, spend 

Some balance transfer credit cards also offer a 0% period on purchases, though the deal period usually lasts for a much shorter period than the balance transfer deal.  

One thing to be aware of is that most credit card providers allocate repayments to the cheapest debt first, i.e. money you pay goes against your 0% balance transfer balance first, meaning you could end up paying interest at the full APR on your new purchases. 

Fees 

Ideally, look for a credit card with no balance transfer fee, but as these are becoming scarce, fees are usually between 2.5% and 3% of the balance you're transferring.  

The trick is to always make sure you include any charges in your calculations when working out if it's worth switching cards.