If you are carrying a balance on a credit card at a high interest rate, a 0% balance transfer card can look attractive. But there is a fee to pay upfront, and the rate jumps once the 0% period ends. Here is what borrowers need to know before deciding.
What borrowers need to know
- A balance transfer moves existing credit card debt to a new card, usually at 0% interest for a set period, often between 12 and 30 months.
- Most cards charge a transfer fee: typically 1% to 3% of the balance moved.
- Once the 0% period ends, the revert rate kicks in. This is the card's standard purchase APR, which can be anywhere from around 20% to over 30% representative APR.
Why this matters
Standard credit card APRs in the UK have been high for several years. If you are paying interest each month on an existing balance, that interest is compounding. A 0% transfer period can freeze that cost, giving you time to pay down the balance without interest adding to it each month.
The important bit is that the fee you pay upfront is usually much less than the interest you would pay if you stayed on your current card.
A simple way to think about it: if you owe £2,000 on a card charging 25% APR and only make minimum payments, you could pay hundreds of pounds in interest over the next two years. A 3% transfer fee on the same balance costs £60 upfront.
A worked example
Say you owe £2,000 at 25% APR. Over 24 months of paying around £100 per month, you would pay roughly £500 in interest before clearing the balance.
If you transfer to a 0% card with a 3% fee (£60) and pay the same £100 per month, you clear the balance in 20 months with no further interest.
In this example, the fee saves a significant amount, though the exact saving depends on your balance, your current rate, and how much you pay each month.
Who may be affected
This consideration applies to anyone who:
- Has an outstanding balance on a credit card they are not clearing in full each month.
- Is currently paying a high standard APR on that balance.
- Can afford to pay down the transferred balance before the 0% period ends.
It is less relevant for people who clear their full balance every month, since they pay no interest regardless.
Things to check before deciding
The revert rate. If you have not cleared the balance when the 0% period ends, the remaining amount will start accruing interest at the card's standard rate. That rate can be high. It is worth making a note of the end date when you open the account.
Eligibility. The 0% period and fee advertised are the representative terms. The actual offer you receive depends on the lender's credit checks. It is worth checking whether an eligibility check uses a soft search, so it does not affect your credit file before you formally apply. MoneyHelper explains soft versus hard searches and how to compare balance transfer deals.
The transfer fee. Compare the fee against the interest you expect to pay if you stay on your current card. If the 0% period is short or your balance is small, the arithmetic may be closer than it looks.
New spending. Putting new purchases on a balance transfer card can complicate things. Payments often go to the cheapest debt first, meaning new spending at a higher rate builds up. It can be cleaner to avoid using the card for everyday spending during the transfer period.
What to read next
For a fuller explanation of how credit cards work and how to compare them, see the guide to credit cards.
If you are thinking about consolidating several debts rather than just one card balance, the debt consolidation guide explains the options and the trade-offs.
Sources
- MoneyHelper, balance transfers and credit card comparisons: moneyhelper