The cost of living crisis is putting strain on a lot of wallets right now. If you've existing credit card debt, you may be feeling the pinch more than most.
If you are in the position of carrying a balance on a credit card, there is—thankfully—an easy way to lift the burden.
Here's how a balance transfer credit card can help you become debt-free quicker.
In a nutshell: how does a balance transfer credit card work?
A 0% balance transfer is a specialist type of credit card. If you apply for one of these cards and get accepted, you can transfer old debts to your new card. Anything you shift across will be interest-free for as long as the 0% period.
How much debt you can transfer will depend on the credit limit you are given on your new card. If you're lucky, your credit limit will be greater than your total credit card debt. If this is the case you'll be able to move across ALL of your debt at once.
However, if you're given a credit limit that is lower than your total debt, you'll only be able to shift across a proportion of your balance. If this happens to you take a look at our article that explains what to do if you're given a low credit on a balance transfer credit card.
Balance transfer credit card warning
While 0% lengths aren't quite as generous as they once were there are still balance transfer cards available with 0% periods exceeding 2 years. However, there's no guarantee cards with huge interest-free periods will be as abundant in a year or two. In fact, it's fair to say that deals are likely to tighten in future as a result of higher borrowing costs.
Whenever the Bank of England raises interest rates, the cost of borrowing also goes up. Each time borrowing costs rise, 0% cards become less profitable for lenders. So, if you do have debt on a credit card, it's probably better to act sooner rather than later.
How can a balance transfer credit card cut what you owe?
A balance transfer credit card can be a valuable tool for cutting existing credit card debt. While you still have to repay any debt you shift across to a 0% balance transfer card, you'll stop paying interest on your balance for the duration of the 0% period. This means all of your repayments during the 0% period goes towards cutting down what you owe as opposed to servicing interest payments.
So, repay a decent chunk of your balance every month and you'll see your debt decrease far faster than it would have done if you were still paying interest. This means you could potentially find yourself £1,000s better off. For example, if you had £5,000 credit card debt on a typical, bog-standard credit card with 39.9% interest and only repaid the minimum each month, annual interest would be costing you close to £2,000! With a 0% card, interest payable on the same amount of debt would be slashed to zero.
Can anyone get a balance transfer credit card?
To get your hands on a balance transfer card you must first be accepted. While acceptance criteria can vary massively between lenders, having a good credit score will almost certainly give you the best chance of grabbing the market-leading deals.
If your credit score isn't the best, take a look at our article for tips on how to boost your credit score.
Will an application harm my credit score?
Every time you apply for a credit card it gets recorded on your credit file—whether you're accepted or rejected. One or two of these marks is no biggie, and they're typically wiped after a year or so. However, if you make lots and lots of applications it's a different story. That's because multiple applications for credit may give lenders the impression that you're in financial trouble and desperate for credit. Therefore, it's best to avoid making subsequent credit card applications if you've already been rejected.
Instead, it's a good idea to use the services of a credit card eligibility checker. That way you can see what cards you're most likely to be accepted for before applying. With credit card eligibility checkers you only undergo a 'soft' credit search which lenders can't see. For more information, see our article that explains soft vs hard credit searches.
What are the best balance transfer credit cards out there right now?
Right now you can shift debt for up to 34 months 0%, (2.88% transfer fee) via Sainsbury's Bank
If you want a card without a transfer fee, then Sainsbury's Bank also has a no-fee card which offers up to 22 interest-free months. The representative APR on both cards is 21.9%.
Balance transfer credit card deals change regularly. For a list of market-leading deals, plus the golden rules to follow with these cards, take a look at our best balance transfer credit cards guide.