How to do a balance transfer with bad credit

Transferring expensive credit card debt to a new card with a low interest rate can help you clear your debt faster at a lower overall cost. Unfortunately, the best balance transfer deals are generally reserved for those with good credit. So, what are your options if you have bad credit?

Can you get a balance transfer card with bad credit?

Getting a balance transfer credit card can be more challenging if you have a less-than-glowing credit record. That’s because poor credit can indicate you’ve had problems repaying debt in the past, and lenders might be more reluctant to let you borrow again as a result.

However, some providers offer bad credit credit cards specifically designed for those with lower credit scores. And occasionally, you can find a bad credit credit card with a 0% balance transfer deal. 

The downside is that the longest 0% deals typically only last up to 18 months, compared to the 25- to 29-month period offered to those with good credit. What’s more, once the 0% deal ends, interest kicks in at a higher rate. 

On the other hand, some credit cards offer an ongoing low APR on balance transfers. This can help you pay off your debt faster at a lower interest rate. But again, you usually need good credit to qualify for the most competitive deals.

Should you do a balance transfer with bad credit?

Even if you do qualify for a balance transfer credit card with bad credit, you should think carefully about whether it’s the right option for you. 

For starters, the 0% offer you get could be much shorter than on a credit card designed for someone with good credit. That means you won’t have as long to pay off your debt before interest kicks in.

Moreover, balance transfer credit cards often charge a fee of 2% to 3% of the amount transferred. So, if you transfer £2,000 and your card charges a 3% fee, your balance will increase by £60.

Another point worth noting is that your credit limit could be much lower than someone with good credit. This means the amount you can transfer to your new card can be quite small. Remember, you can typically only transfer a sum equal to 90–95% of your credit limit.

Finally, if you want to use a balance transfer credit card, it’s crucial to have a solid repayment plan in place. If your card has a 0% deal, you want to try and pay off your balance before the interest-free offer ends.

If you miss a payment, a late payment fee applies, and you could lose any 0% promotional offer you have. You also risk damaging your credit score further. For this reason, it’s important to understand how balance transfers impact your credit score.

Read more:

• How much can you balance transfer to another credit card?

• How many balance transfers can you do?

Pros and cons of balance transfers with bad credit

Here’s a quick summary of the advantages and disadvantages of doing a balance transfer with bad credit. 

Pros

• If you qualify for a 0% or low-interest deal, you could clear your debt more cheaply

• You could save money on interest payments

• Paying off your debt can help to improve your credit score

Cons

• Most balance transfer cards have a transfer fee

• You won’t qualify for the best deals

• If you don’t pay off your debt on time, you can make your credit score worse

Read more:

• Balance transfer pros and cons

• Common balance transfer mistakes

Alternatives if you have bad credit 

A balance transfer credit card isn’t the only option for clearing debt if you have bad credit. It’s worth exploring the following alternatives to find the right choice for you.

Negotiate a better APR

You could try contacting your existing credit card provider to see if it can offer you a lower APR. This can help you pay back your debt faster. If it’s a credit card you’ve held for a while and you’ve kept up with your repayments, your provider might agree.

On the other hand, if you’re struggling to make your repayments, your provider might help you develop a repayment plan that can make them more affordable.

Apply for a debt consolidation loan

Personal loans enable you to borrow a lump sum of cash that you then repay in fixed monthly instalments. You can use a personal loan to consolidate different types of debt, including existing credit cards and loans. This can make your debt more manageable as you only have one monthly payment to make and one lender to deal with.

The downside is that interest rates can be higher if you have bad credit than those offered to someone with good credit. However, rates are generally more competitive compared to bad credit credit cards.  

The banking world refers to personal loans as ‘unsecured’, which means you won’t need to use an asset, such as your home, as collateral.

Approach your credit union

You could approach your local credit union to see if it can help. Credit unions are not-for-profit organisations that let people in a community or organisation save and borrow money. 

You can often qualify for a loan at a credit union, even with poor credit. Interest rates are typically more competitive, too. You can then use your loan to consolidate existing debts.

Boost your income and reduce expenses

If you can, look for ways to boost your income, such as working part-time. Also, look for ways to lower your expenses. Perhaps you could cancel some of your subscriptions or find a better broadband or mobile phone deal. 

Taking these steps gives you more cash to put towards your debts so you can pay them off faster.

Improve your credit score

Making an effort to improve your credit score can help you access better credit deals in the future. It’s sensible to get a copy of your credit report from one of the three credit reference agencies—Experian, Equifax or TransUnion. Check your report for any mistakes and get them fixed as soon as possible.

You can also improve your credit score by paying your bills and debt repayments on time, checking you’re on the electoral roll and spacing out credit applications by at least three months.

Read more…

• Compare balance transfer credit cards

• Common balance transfer mistakes – and how to avoid them

• Pros and cons of balance transfer cards