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Will a Balance Transfer Deal help you ease the strain of your Credit Card Debts?

What is a balance transfer?

  • Balance transfer deals are most commonly offered by credit card companies in the UK. This kind of deal, for example, may be offered by a credit card company you already hold a card with or with a new one that wants you to sign up for a card with them.

    So, for example, the credit card company may offer you a deal where you transfer the balance of one or more other credit cards on to their card. As an incentive to do this they will offer a balance transfer deal. This will either charge you a lower rate of interest on the money you transfer or, as is often the case, may offer you a 0% interest deal on the transferred sum(s) for a set period of time.

What are the advantages?

  • If you are carrying over credit card balances every month without paying them all off then you will be charged interest on the money that you owe. Even if you do not spend on the card any more the debts that you owe will carry on growing, making them much harder to pay off.

    This can be a big problem if you are short of cash and can only make the minimum payment every month. The advantage here is that the money you transfer to a 0% deal, for example, will not have any more interest added to it for the time that the deal is set to last. So, you’ll be able to make greater inroads into repaying what you owe even if you only make the minimum repayments.

What should you look out for?

  • Balance transfer deals don’t last forever so your primary aim here should be to pay off as much of your debt as you can as quickly as possible. Once the deal is done the money that you still owe will revert back to standard rates of interest as charged by the credit card company. In some cases this interest rate can be a lot higher than the one you were originally paying.

    To make this deal work with significant credit card debts you need to stop spending on your card here. Many balance transfer deals will also offer you a discount or 0% interest on new spending you make on the card while the deal is in place. What you don’t want to see happen is for your overall debts to grow because you have spent more to take advantage of the deal and not concentrated on repayment.

    You also need to realise that these deals don’t come free. The credit card company will normally charge you a percentage of the sum(s) that you want to transfer on to a card as a fee.

Can you get a balance transfer deal?

  • If you already have a credit card where you haven’t maxed out the limit then the chances are your credit card company will have a deal in place that will let you transfer over a balance to take advantage of what they are offering. In most cases you will not be able to transfer more money than your available credit limit.

    If this is not possible then you may need to look at taking out a new balance transfer deal by applying for a new credit card. Whether you will get approval here may well depend on how serious your debt problems are. If you have an impaired credit history or if your debts outweigh your income then you may find that you cannot get approval for a card in the first place, never mind a balance transfer deal.

    This kind of deal can offer a good short term solution to managing credit card debts. It can give you breathing space and can cut down on added interest to help you pay off more of your debts that you might normally be able to. But, do remember that this kind of deal will only work if you concentrate on making it work for you. So, make sure that you make your payments on time every month (failure to do so could see your deal invalidated) and pay off as much as you can. Don’t be tempted to carry on spending as this will decrease the advantages that you could see with a balance transfer deal.
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