How to use balance transfers to clear debt

Harriet Meyer / 11 April 2016 ( 11 May 2018 )

A guide to making use of interest-free periods to save money and clear your debt.

Consumers saddled with credit card debt have a range of balance transfer credit cards to pick from offering 0% interest over several years.

These 0% cards can save a huge amount in interest payments by transferring balances from a card with a hefty rate. However, they are only useful if you repay the full sum owed before the interest-free period ends.

Balance transfer cards are a really useful way to clear debt – provided they are used sensibly.

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How they work

Let’s say you’ve built up various credit balances on cards with interest rates at an average 18% or more. 

If you switch the outstanding balance to a 0% balance transfer card, you can stop paying interest altogether on your debt while the offer lasts. This could be as long as three years, or even more.

Compare transfer fees

There is a catch. You pay a percentage fee of up to 3% on the balance to move this onto one of these cards. 

So if you transfer a debt of £3,000, you pay a fee of £90. Consider this in any calculations when comparing cards.

However, you are still likely to save money with a balance transfer credit card. Interest rates on standard cards are likely to cost you more than the transfer fee on a balance transfer credit card.

There are cards with lower fees and shorter interest-free periods. Another option is a card that doesn’t charge this fee an offers a low rate of interest. Do the sums carefully to work out the best option for you.

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Check the period

As long as you wipe your debt during the 0% deal, you won’t pay any interest on the sum owed. Think of it like an interest-free loan.

However, when the interest-free period ends, you will be charged interest at the card's standard rate on any balance left over.

Remember to cancel the card when the balance is cleared. This will avoid any temptation to use the card when the deal is over, seeing you potentially rack up more debt.

Read our guide to the features to look for when choosing a credit card.

Set up a direct debit

The simplest way to manage debt and avoid unnecessary late payment charges is to set up a direct debit. You can work out how much this needs to be to ensure the total debt is wiped over the 0% period. For example, if the deal lasts 24 months, and you owe £2,400, set up a direct debit of £100 per month.

If you can’t afford to wipe your debt during the period, then consider switching to another 0% deal before the offer expires.

Alternatively, you could wipe out the debt in full at the end of the term. 

However, you must ensure to set up a direct debit for the minimum payment each month. Make a note of when the offer ends, and check you will have sufficient funds to repay the debt.

For more tips and useful information, browse our money articles.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.