0% balance transfer credit cards explained: how they work and the traps

How a balance transfer works

1. You apply for a new card that offers 0% on balance transfers.
2. Once you are accepted, you ask it to pay off your old card. This usually has to happen within the first 60 or 90 days to get the 0% rate.
3. The new card charges a transfer fee, a percentage of the amount moved, added to your balance.
4. For the 0% period, nothing you pay goes on interest. It all reduces the debt.
5. When the 0% ends, any balance left is charged at the card's standard rate.

Is it worth the fee?

Usually, if you are paying a typical credit card rate. Compare the one-off fee with the interest you would pay in the meantime.

If you paid nothing off, a £3,000 balance at 24.9% APR would build up around £700 of interest in a year. A 3% transfer fee on the same balance is £90.

The longest 0% deals often have a higher fee. If you can clear the debt sooner, a shorter deal with a lower fee may cost less.

Work out your monthly payment

Divide the balance, plus the fee, by the number of months at 0%. That is what you need to pay each month to be debt free when the deal ends.

The minimum payment the card asks for will be much lower. Set up a standing order for your own figure instead.

Free toolDebt payoff calculatorSee when you will be debt free, and whether the snowball or avalanche method saves you more.→

The traps

• Missing a payment. It can cancel the 0% deal and lead to a late fee and a mark on your credit file. Set up a direct debit for at least the minimum.
• Spending on the card. New purchases are often charged at the standard rate from day one. Keep the card for the transfer only.
• Not moving the balance in time. The 0% often only applies to transfers made in the first few weeks.
• A lower limit than you hoped. You often only find out your limit after you are accepted, and you can usually transfer up to 90% to 95% of it.
• Same banking group. You normally cannot transfer between cards from the same group.
• Relying on another transfer. You may not be accepted for a new deal when this one ends.

Will it hurt my credit score?

Applying leaves a hard search, which has a small, short-lived effect. Use an eligibility checker first: it uses a soft search, which lenders cannot see, and shows your chances of being accepted.

Over time, clearing the debt faster usually improves your score. See how to improve your credit score.

If you cannot get one

You might be turned down if you already have a lot of debt or missed payments. Other options:

• Ask your current card provider whether it can lower your rate
• A cheaper personal loan to clear the cards, if you can get one at a lower rate
• If repayments are already a struggle, talk to a free debt charity before taking on new credit

Common questions

Can I transfer an overdraft to a credit card?

Some cards offer money transfers, which pay cash into your bank account to clear an overdraft. They usually have a higher fee and shorter 0% periods than balance transfers.

What happens when the 0% period ends?

Any balance left starts being charged at the card's standard rate. Check your agreement for the date, and set a reminder a couple of months before.

Can I do a balance transfer with bad credit?

It is harder. Some cards accept people with a weaker history but offer shorter 0% periods or lower limits. An eligibility checker will show you which you are likely to get.