According to a 2022 survey by the Financial Conduct Authority (FCA), 21% of UK adults with credit card debt have used a balance transfer to pay off their debt faster. This is up from 18% in 2021. Balance transfers can be a great lifeline when paying down your debt as they enable you to save money on interest; however, there are some drawbacks to this method which, if not managed effectively, could result in more debt.
A balance transfer is when a credit card owner opens up a new credit card account with an alternative provider and moves their existing balance over. People utilise this strategy to take advantage of introductory 0% interest offers that typically last for 12 months. If you do not pay off your balance in full each month, the interest won’t rack up which enables you to consolidate your debts and (hopefully) pay the balance down to £0 sooner. This is particularly helpful to those with a high interest rate and a high balance on their current card as it means that more of your debt repayments are going towards paying down your principal balance, instead of the interest that has been racked up.
There are many ways in which a balance transfer can benefit your debt pay-off journey such as saving money on interest which we focused on before. Another reason why people utilise this method is because it enables them to simplify their debt repayments. Transferring your balance to one card means you won’t have multiple cards to pay with different due dates. Therefore, tracking your progress is made slightly easier as only one payment is made each month.
Of course, there are also some potential drawbacks to using balance transfer cards, one being that some cards charge balance transfer fees. When you transfer your funds from one credit card to the other, you can be charged between 3%-5% of the transaction (it’s like credit card companies know people do it 👀). Therefore, this fee, if your balance is large, could be a deterrent from transferring your funds into a 0% card. Another drawback is that if you don’t pay down your balance before the 12 months are up, you’ll be charged interest at the card’s regular rate. Therefore, you could end up in a similar position as before. Whilst this might be true, your balance will hopefully be lower than before you utilised the 0% interest offer saving you (some) money!
Overall, balance transfer cards are a great way to save money when paying down your debt but one tip we have is to shop around and see what card works best for you as well as, make sure you read the T&Cs. We’d hate for anyone to transfer their funds into an account that has lots of clauses and end up losing more money than they would have without transferring their funds. So remember:
💡shop around and compare what’s out there from different credit card companies
💡Make a plan of how much you want to pay towards your debt so that by the end of the introductory period your balance is at/close to £0
💡Make all your payments on time (sometimes missing payments could cause you to lose your promotional interest rate)
💡Check to see if you qualify for the balance transfer (credit score requirements)
OR, if you don’t fancy going through hoops to open up a new credit card account and transfer your balance over, you can also download Incredible from the app store - It's completely free!
Connect your cards and we optimise your debt repayments, provide suggestions on overpayments as well as make the whole process of paying down your debts stress-free!
Incredible is THE alternative way to get similar perks to balance transfers as we help you unlock savings through smarter repayments and help you consolidate paying down your debt through one single payment. No setup fees, subscription fees or impacts on your credit score 👀