How does a balance transfer credit card work?

Full answer

Balance transfer credit cards are one of the most effective tools for tackling existing credit card debt, provided they are used with a clear repayment plan. **How the transfer works** You apply for a new balance transfer credit card and, if accepted, request that some or all of your existing credit card balance be moved onto the new card. The new provider pays off (or partially pays off) your old card balance, and you then owe that amount to the new card provider instead, typically at a promotional 0% interest rate for a set introductory period. **The balance transfer fee** Most balance transfer cards charge a one-off fee, usually a percentage of the amount transferred (commonly around 2% to 3%, though this varies by card and promotional offer), added to your new balance at the point of transfer -- always factor this fee into your comparison, since a longer 0% period with a slightly higher fee can still work out cheaper overall than a shorter period with a lower fee. **What happens when the 0% period ends** If you have not cleared the transferred balance by the end of the promotional period, the remaining amount reverts to the card's standard (often much higher) interest rate -- typically well above 20% APR. Missing this deadline is one of the most common ways people end up paying significantly more interest than they expected. **Making the most of the 0% period** To genuinely benefit, divide the transferred balance by the number of months in the 0% period and aim to pay at least that much each month, so the balance is fully cleared before the promotional rate expires -- if you can only pay less than this, you may need a longer 0% deal or a realistic plan for what happens afterwards. **Avoiding new spending on the transferred card and the old card** Many balance transfer cards charge a different (often higher) interest rate on new purchases made on the same card, separate from the 0% transferred balance rate -- check the terms carefully, and avoid spending on the old card you have just cleared, since this simply recreates the debt problem you were trying to solve. **Worked example** Someone transfers £3,000 of credit card debt onto a card offering 0% for 24 months with a 2.9% transfer fee (£87). By paying £125 per month, they clear the full balance (plus fee) within the 24-month window, paying no interest at all -- compared with potentially hundreds of pounds in interest had the debt remained on a standard-rate card. **Practical tip** Use the Credit Card Payoff calculator to work out the minimum monthly payment needed to clear a transferred balance within its 0% window, and set up a standing order for that amount so you do not miss the deadline.

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