8 factors to consider before your next balance transfer

By UK CreditCards.com

Transferring your credit card balance from one card to another used to be quick and relatively inexpensive. However, these days, it's essential that you plan out your balance transfer and determine how much the switch is actually going to cost.

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Here are eight factors you need to consider before taking out a balance transfer.

1. The transfer amount
If you have a large outstanding credit card balance, you may not be able to transfer the entire amount if it exceeds the card's maximum transfer limit. However, if you are able to transfer a portion of your total, it could still significantly reduce your interest costs so don't give up. Too many borrowers decide against balance transfers if they are unable to switch the entire balance. However, this can be a costly approach.

Tip: Determine how much you are allowed to transfer over, calculate the cost savings in interest from the balance transfer and use those savings to pay down the remaining balance on the older card.   

2. Balance transfer fees
Balance transfer fees can trap you into paying far more on your balance transfer than you expect.

UK credit cards used to have a cap on the maximum fee applied to a balance transfer. However, the majority of credit card companies have now waived this cap and apply the full charge.

Tip: Calculate your fees. A 3% balance transfer fee might not sound like a lot of money. However, when it is applied to a large balance, the fee amount can skyrocket. For example, consider this: a 3% balance transfer fee on a £10,000 balance is £300.

3. Your credit score
Pay attention to your credit score. It will determine what kind of balance transfer offer you qualify for.

Personal discipline is one of the most important aspects of opening a balance transfer credit card.     

For example, an excellent credit rating could help you achieve better offers, making the balance transfer much cheaper. If you think you have an excellent credit rating because you have a long history of paying on time, a reasonable amount of credit available to you and have demonstrated that you are a reliable borrower, you may be eligible for 0% balance transfer offers with lengthy promotional periods and other perks.

However, if you have fair to good credit, you could end up with a shorter 0% promotional period or a higher APR.

Tip: Don't take the introductory rate to be the actual rate you will pay in the long term. Your credit rating could help or hinder you here depending on how good it really is. You may qualify for much lesser interest rates than advertised, but also much higher. Confirm with the provider what the real interest rate for you will be before you go ahead.

4. The effect on your credit score
Cancelling an old credit card, drastically increasing your credit limit or applying for another credit card can have a significant, though often temporary, impact on your credit rating. If you plan to apply for another loan in the near future, you need to first determine how your credit score will be affected by the balance transfer.

Tip: Take steps to limit the transfer's impact on your credit rating. For example, don't close your old credit account straight away. Instead, securely destroy the card so it's still a part of your credit history but you cannot use it.

5. Your credit card habits
Personal discipline is one of the most important aspects of opening a balance transfer credit card. If you open up a card and stick to your plan of reducing your overall debt and interest costs, you will likely save a significant amount. However, if you are in a difficult situation, it can be easy to slip into bad habits and see the 0% balance transfer offer as an excuse to continue spending.

Tip: After you receive the balance transfer card, put it in a drawer and don't use it for purchases. If you make a purchase on the card, it will be put to the back of the queue as your balance transfer is the first part of your debt to be paid off. Even small purchases could cost you a lot of money in interest -- particularly if it takes a number of years to pay off the original transfer amount.

7. The possibility that the offer you see isn't what you receive
You might receive letters through the post informing you that you have been pre-approved for a balance transfer offer, but when you actually submit the application, you could find you are offered a different amount. If you are happy with the second offer it may still be worthwhile to transfer your balance. However, do the math to make sure the balance transfer is still beneficial.

Tip: Applying for multiple cards in a short period of time can negatively impact your credit rating, so if you decide to turn down the second offer, wait before you apply for another credit card.    

8. The time it takes to transfer the balance
Have you ever heard the phrase "time is money"? Comparing cards, finding the best balance transfer card for you, filling in applications and completing all the other administrative tasks that go along with it takes time -- and you will need to be prepared for it.

Tip: Consider how much time you currently have to devote to planning out and applying for the balance transfer. If it takes more time than the transfer is worth, you may want to wait for a better deal.

See related: 0% balance transfer deals getting sweeter for consumers; Balance transfer credit cards: What to consider first;

Published: 6 October 2011