Understanding credit card balance transfer offers

Feb 2, 2020

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Credit cards can advertise enticing offers to attract new customers. These can range from a reduced or no annual fee in the first year to a generous welcome bonus for meeting a minimum spend in the first 90 days, and even travel benefits like lounge access, travel insurance and hotel elite statuses.

Related: The best U.K. miles and points credit cards of 2020

You may also be offered a balance transfer offer. This is where you can shift your credit card balance from an existing card to your new card. You may be planning to cease using your old card in favour of the new card, but still have a balance to pay off before you can close the account.

It could be very convenient to move your balance from one card to another. The new card may offer a special deal on the balance transfer itself. For example, Virgin Atlantic credit cards in the U.K. offer the following: “0% for 6 months on balance and money transfers (you’ll pay a 3% fee)”.

Related: Credit card review: Virgin Atlantic Reward+ Mastercard Credit Card

Let’s have a look at what that offer actually means. The 0% for six months means that if you move a balance across to the new card, there will be no interest payable on the amount transferred for a six-month period. If you are paying interest on this balance on the old card, then this will save you money. If your balance is £1,000 and you were paying 23% p.a. interest, you would be charged £115 in interest on that balance over a six-month period, not taking into account compounding interest (interest charged on the interest) or reductions in the balance by making the minimum repayments each month.

However, don’t forget there is that 3% balance transfer fee. On that £1,000 balance that would be a fee of £30. This is a one-off fee.

(Photo by Liam Spencer/The Points Guy)
(Photo by Liam Spencer/The Points Guy)

There’s a few important things to keep in mind with a balance transfer offer:

  • You will not normally be able to transfer more than the credit limit of your new card, even if the credit limit and balance of your old card was higher. For Virgin Atlantic cards, you can transfer up to 95% of your credit limit.
  • If your transferred balance is close to your credit limit, you may have difficulty meeting the minimum spend to achieve your welcome bonus if you do not pay down your balance quickly as you will need to have enough . available credit limit to meet the minimum spend.
  • You may be able to make further balance transfers onto your new card at a later date, although they may not be subject to the same interest free offer and may have a different (i.e. higher) balance transfer fee. The Virgin Atlantic card balance transfer fee rises to 5% for transfers made after the first 60 days of card ownership.
  • Balance transfer offers differ between card products, as do the interest rates charged on the balances you may be considering transferring. If the balance transfer fee is high but the interest rate from your old card is low, consider the overall costs of making the balance transfer versus leaving the balance where they are.
  • You will not earn any points or miles on the balance you are transferring, as the balance is not a purchase on the new card.
  • Balance transfer offers may not be offered for charge cards, as unlike credit cards the full balance of charge cards is due each month, so a six month interest free offer would not work.

Related: Why keeping an additional credit card for emergencies did me more harm than good

Bottom line

Balance transfer offers can be yet another enticing benefit for new customers considering a credit card product and can reduce your short-term interest costs in the right circumstances. It is important to understand the full cost and process of the balance transfer before deciding if the offer is right for you.

Featured image by Josh Gribben / The Points Guy

Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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