In terms of credit cards, low interest rates and annual fees are often the most-talked-about features when comparing what’s on offer in the market.
But if you’re looking for a change from your existing credit card provider, a balance transfer deal with no fees can be just as important as the other features, particularly if you’re looking at reducing your existing debt.
So what is a balance transfer?
A balance transfer is where part or all of a debit balance or debt owed to a lender is transferred from an existing credit card to another.
This is usually done by a card holder to save money on interest repayments from another card, or to consolidate multiple debts into one card at a lower overall repayment cost.
What is a balance transfer deal with no fees?
Many banks and financial institutions offer credit cards that have no extra fees when you move your balance across to the new card. This is referred to as a ‘no fee’ balance transfer.
Card providers will offer this deal in a bid to attract people to switch from their current provider to a new card provider so they can save money.
However, despite some card providers offering a zero balance transfer fee, they may then apply a higher interest rate or annual fee to the card in an effort to offset some of the commercial income they have forfeited by offering the balance transfer deal.
How do you find a balance transfer deal with no fees?
When you’re investigating options being offered on various cards in relation to finding a balance transfer deal with no fees, there are several questions you need answered:
- How long does the no fee balance transfer period last? Some banks and financial institutions will vary substantially between their introductory periods, so it’s worth shopping around.
- Is there a limit to how much you can transfer from another card? The card provider may have a particular policy on how much of the credit card limit can be attributed to a balance transfer.
- Despite a zero fee on the balance transfer, is there also an interest rate attached to any balances transferred - and if so, what is that rate? Often a small percentage is applied to an initial balance transfer as a one-off rate.
- What does the interest rate on balance transfers revert to after the promotional period finishes? This can vary significantly between providers, and if you haven’t paid off the balance before the period finishes, this increased rate applies to the outstanding balance.
- What is the interest rate and annual fee attached to the same card?
- Are there any other restrictions on where your funds are transferred from? Some card providers may not allow you to transfer funds from one of their cards to another card type. You need to check their policy before you apply.
How to maximise your no fee balance transfer deal
Once you have determined that you’ve found the best balance transfer deal for you, you need to put strategies into place to ensure you take full advantage of what it offers you.
The balance transfer deal centres on providing users with the opportunity to pay down debt at no cost. However, you can only achieve this by being disciplined about making repayments that pay off principal and interest over the promotional period so that, ideally, you pay off the whole debt during that period.
Further spending on top of the balance you have already transferred onto the card will negate any benefit gained from having no fees on the balance transfer amount. Setting a realistic personal and household budget is an effective way of restraining yourself through the promotional period to ensure making the switch to the new card has been financially worth it.
Is there an alternative to balance transfers?
If you’re an existing cardholder looking at different balance transfer deals as a mechanism to pay off debt more quickly, there is another alternative.
Consolidating the debt into your mortgage, by incorporating the extra amount into your repayment levels, is an option for some people who already have an existing loan and wish to pay down the additional debt accrued on a credit card.
While this can be an effective way of simplifying your overall debt structure, it does require ongoing control around any spending on the credit card as well as any further drawdowns on the mortgage. A consistent and concerted approach to prudent spending across all your transactions will allow you to keep in control of your finances.