Let’s take a look at what balance transfers are and how they work…
What Are Balance Transfers?
A balance transfer is when you transfer your existing credit card balance, or balances, to a different credit card under a different provider.
Why Do People Use Them?
It’s a way of keeping all of your borrowing in one place, which can make it easier to keep track of, as you only have to keep your eye on one balance, with one payment to make every month.
As well as keeping all your borrowing in one place, some people choose to carry out a balance transfer to take advantage of low rates, which can help you clear your balance if you focus on paying off the debt quickly.
Introductory Interest Rates
Some providers will offer you an introductory or promotional interest rate which will mean lower monthly interest payments in the short term. This can give you time to pay off what you owe without the interest accumulating.
However, you should always look into when these introductory rates will end and what your interest will then become when you move onto the standard rate. This is because you could be left paying much more interest than you expected, raising your monthly payments once that introductory interest rate expires.
Balance Transfer Fees
When you do a balance transfer, you are often charged an initial one-off fee. This balance transfer fee is worked out as a percentage of the balance you are moving across. This is usually between 0% and 5% of the total transfer amount, depending on the provider.
Avoiding Spending
Because a balance transfer card is still a type of credit card, you can also use it for spending. However, doing so can often incur high interest charges.
They should really just be used for trying to clear the debt fully before the interest-free period ends. If you are someone who is easily tempted by a credit card to overspend, a balance transfer probably isn’t for you.
Summary
To summarise, balance transfers can help you consolidate your debts in one place, and you can take advantage of paying off your debt during the introductory interest rate period.
However, you should consider the initial transfer fee, the fact that the interest rate will increase once the introductory period ends, and that you will be charged high levels of interest for spending on these types of cards.