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2.8. Balance transfers

A balance transfer is when you move an existing debt to a new credit card that offers a lower interest rate (usually only for the introductory period). Balance transfers can help you save money and pay off debts, but these offers are also a way for credit card providers to get new customers because you can only transfer the debt between different issuers.

A lot of people get credit cards specifically for a balance transfer offer and when you go to a provider’s website or a comparison website you’ll see a dedicated section for “balance transfer credit cards”. If you decide to get a credit card for the balance transfer offer, there are three key things to look at:

  1. The balance transfer interest rate and introductory period (e.g. 0% for 12 months)
  2. The interest rate applied at the end of the introductory period
  3. The annual fee
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2.8. Balance transfers

You should always aim to pay off the debt before the end of the introductory period of a balance transfer card.

Example
If you were paying the minimum amount on a credit card with a 17% interest rate and a debt of $5000, then transferred it to a card offering 0% interest for 12 months, you would save around $800 in that 12-month period.

If you made monthly payments of $420 towards this debt, you could pay it off within the introductory period so that you never get charged interest on this balance.