Pros and cons of doing a balance transfer

Balance transfers can help people with credit card debts. Yet, for some the disadvantages may outweigh the advantages.

What is a balance transfer?

A balance transfer involves moving credit card debt from high-interest cards to a zero or low-interest card, so you more easily repay what you owe. It’s a popular way to tackle debt, but as the following rundown of pros and cons shows, there’s more to it than a 0% interest term.

What are the pros of doing a balance transfer?

There are several standout benefits of balance transfer credit cards, including:

• During an introductory period, which can be up to 28 months in some cases, the provider adds no or much less interest to what you want to pay off

• Moving all your credit card debts onto one balance transfer card makes it easier to see what you owe and pay it off

• Some providers run a soft credit check to see whether you’re eligible for the card. Unlike a hard credit check, this doesn’t appear on your credit report

• Your new card may come with such perks as cashback and discounts 

• Your credit score typically rises when you have cleared your credit debt

What are the cons of doing a balance transfer?

It’s easy to see why so many people are sold on the benefits of balance transfers. But there are some things to consider before applying: 

• Providers typically add a balance transfer fee of up to 5% of the total amount you want to transfer. This fee may be more than the interest incurred if you stay put

• Interest typically shoots up when the 0% deal ends

• The interest-free deal stops if you miss monthly repayments

• Spending on balance transfer cards isn’t often included in the 0% deal

• You can’t open a balance transfer card if you have another card with the same provider

• You may be able to transfer up to around 93% of your credit card debt, but the exact limit could be much lower

• the card provider may reject your application if you don’t have a good enough credit score Multiple credit applications can affect your credit score 

Should you do a balance transfer? 

Whether you should get a balance transfer card depends on personal circumstances and comes down to how concerned you are about the potential disadvantages. 

If the cons don’t alarm you, the balance transfer route could be right for you. 

What are the alternatives to balance transfer credit cards?

If it’s likely that you won’t clear the debt before the 0% term ends, perhaps because you owe too much, you could consider another option, such as: 

• Personal loans – these typically have a repayment term of up to seven years

• Debt management plan – an agreement to repay what you owe, based on what you can afford

• IVA – an Individual Voluntary Arrangement is a government-backed scheme for people with overwhelming debts

• Bankruptcy – by declaring yourself bankrupt the court takes control of your assets, using them to repay your debts

Worried about your credit card debt?

Speak to Citizens Advice or a debt charity such as StepChange if you’re anxious about your credit card debt. They can offer impartial and confidential advice, and point you in the right direction.

Read more…

• Compare balance transfer credit cards

• Common balance transfer mistakes – and how to avoid them

• Pros and cons of balance transfer cards