"Balance Transfer" and "Purchase" Interest rates:

What is a balance transfer?

Every credit card company these days seems to be offering "0% interest on balance transfers". Many offer this for differing lengths of time - some offer 6 months 0% interest, others offer up to 15 months 0% interest on balance transfers.

But what does it mean and what effect does it have on you?

A balance transfer is very simply a process where you move the outstanding balance from one credit card to another. If, for example, you have £1000 outstanding on an Egg credit card, you could potentially move this £1000 debt over to, for example, an RBS credit card. But why would you do this, you may ask?

Best balance transfer cards

Best Balance Transfer Credit Cards		Balance Transfers		Purchases		Typical APR
Best Balance Transfer Credit Cards		Rate	Duration	Rate	Duration	Typical APR
	Virgin Credit Card with 2.98% balance transfer fee. Also with discounts on other virgin products More credit card info below	0%	15 months	0%	3 mths	15.9%
	Egg Credit Card with 3% balance transfer fee. Great anniversary offers on balance transfers. More credit card info below	0%	Up to 15 months	0%	3 months	16.9%

Well, credit card companies not only want you as a customer, but they also want to take on your debt. At the moment you're paying interest on your £1000 debt with Egg. If for example the interest rate is 16.9% then you would be paying approximately £15 per month in interest alone. Now there would be no point in switching this debt over to somewhere else if you still have to pay the £15 interest per month - you wouldn't be winning. This is where the balance transfer offers come in. Suppose a company said to you, move that £1000 debt over to me, and instead of having to pay £15 amount per month from now, we'll give you the first few months free. Well, by free, I mean, you don't have to pay any interest.

Why Should I Balance transfer?

This sounds good - you have a £1000 debt, but you don't have to pay any interest on it. In a way you may think that this is just a holiday period, they'll make up for it later. In a way you'd be right in thinking this. If the 0% interest on balance transfers is for 9 months then although you wouldn't have to pay anything off for the first 9 months, after that the normal interest rate kicks in and you have to start paying it off.

So is it just a holiday period where I don't have to pay my debt back - yes, it is. But there's another benefit.

1) If you have £1000 worth of debt, you would normally be paying £10 - £15 per month interest (roughly). After 9 months you would have paid around £90 - £135 of interest. With the balance transfer offer though, if you can pay back the whole amount within the offer period then you don't pay any interest at all.

2) Or.. after 9 months you can transfer the money to another credit card with a 0% interest balance transfer offer as well, again saving you interest payments.

Things to look out for

Balance transfer fees - credit card companies charge you for transferring your balance. The usual rates are between 2.5% and 3%. This can still make a balance transfer a good option though. If your debt was £1000 the fee to transfer it might be £30.. but if they are offering 9 months at 0% interest and the interest rate is 14.9% then you still be making a saving of over £80..

Applying for too many credit cards - if you apply for lots of credit cards it may affect your credit score. Your credit score is what credit card companies and mortgage companies etc look at when they decide whether or not to loan you money / give you a mortgage. There is no set figure on what is too many and what is ok, but bear this in mind if you apply for lots and lots of credit cards!

Spending money on your balance transfer card - This is a really really important point! If you do a balance transfer onto a credit card make sure you do NOT use the card anymore for normal purchases! Whenever you pay money off on a card the amount in "offers" is paid off first. Basically, if you transfer £1000 onto a 0% interest for 9 months credit then you should not get charged any interest for those 9 months. If you use your card straight away after doing the balance transfer to buy something for, for example, £50 then you are going to get charged interest on this amount.. The problem is that you will be charged interest until the £50 is paid off.. and the £50 is not paid off until you have paid off the full £1000 first.

If it takes you a year to pay off the full £1050 on your card then you will have had 9 months interest free on balances.. but the £50 would have started building up interest since month 1.. and would have been building up interest all year until you paid off the last bit on the card to put it at 0 balance. Please be aware of this!! It does not mean that you should not get a balance transfer card - it does mean that you have to be careful and use it wisely though!

We've got details of the best balance transfer cards below - use them properly and they could save you a lot of money!

Credit Card - deals of the week!		Balance Transfers		Purchases		Typical APR
Credit Card - deals of the week!		Rate	Duration	Rate	Duration	Typical APR
	RBS Credit Card - Credit cards for everyone! 2.9% transfer fee More student credit cards below	0%	13 months	0%	6 months	12.9%
	Post Office Credit Card with 2.75% balance transfer fee. More credit card info below	0%	10 months	0%	3 months	15.9%