Many credit cards feature low or 0% introductory balance transfer rates, typically intended for transfers from existing credit cards. So how do you go about taking advantage of a credit card with a 0% period to pay off a personal loan early?
To take advantage of a credit card’s 0% period, you need to follow certain steps to transfer your personal loan debt to the card. This guide outlines the necessary steps and important factors to consider when selecting the right card for your debt payoff.
How to balance transfer a personal loan to a credit card
Request an early settlement figure from your loan provider. It may be wise to plan on paying off the loan a few weeks in advance as it could take some time for you to be approved for the new card and receive it.
Calculate your costs. Make sure that transferring the debt to a credit card will save you money.
Compare money transfer credit cards. Make sure you find a card with 0% interest on money transfers or no fee for money transfers, and check that you’re eligible.
Apply for your new credit card. Don’t be tempted to apply for lots of different credit cards – this can look bad on your credit report and put off future potential lenders.
Transfer funds to pay off the personal loan. Be sure to confirm with your loan provider that the loan has been cleared and that the account is closed.
Pay off the debt. Make sure you clear the debt before the low/no interest period finishes, or transferring could have been a waste of your time. You’ll need to set your own monthly payment amounts, which will be higher than the credit card issuers minimum monthly payments. To work out what you should pay each month, divide the amount of your debt by the number of months remaining in the low/no interest period.
What type of card should I look for?
While balance transfer credit cards are designed to let you move funds from one credit card to another, money transfer credit cards allow you to make a transfer from your new credit card to any account, and then enjoy low or 0% interest on the balance transferred for a set period, which could even be as long as 36 months. These deals are sometimes also referred to as “super balance transfers”.
Money transfer credit cards normally charge a fee, which is usually a percentage of the transfer amount. Which of the two you should go for will depend on the length of time you need to clear the loan.
Let’s consider two scenarios:
“I need 3 years to clear my £10,000 debt”
You could be better off with a card that charges no interest on money transfers for a long period, and a low money transfer fee. A typical transfer fee of 3.5% would amount to £350, and you could pay substantially more than this in interest over three years.
“I need 6 months to clear my £10,000 debt”
You could be better off with a card that charges no fee for money transfers, and a very low rate on money transfers for at least 6 months. A typical transfer fee of 3.5% would amount to £350, and depending on the rate, you could pay less than this in interest.
What to avoid when transferring your debt
Fees from your loan provider. Are you allowed to pay off your loan early? What are the charges for doing so, and how much will it save you in interest. Remember, “no penalty for early repayment” does not necessarily mean you will save money by repaying your loan early. Most big banks will charge two month’s interest on any sums repaid early, so it’s important to factor this into your calculations.
Money transfer fees on the new credit card. You can typically expect to pay a fee of around 3% of the transfer amount, although it is possible to find cards where this fee is lower, or cards which don’t charge a fee.
The “revert rate”. At the end of the introductory period, the low promotional interest rate for balance transfers will revert to a standard variable rate. This is usually the standard cash advance rate for your card, so aim to pay off your balance before this rate applies. If you only make the card issuer’s minimum monthly payments each month, you could end up paying for it.
Additional spending on your new card. Credit cards are a “revolving line of credit”, in contrast to a personal loan which lasts for a set length of time. Having the card may tempt you into spending which you would otherwise have resisted.
Leaving your old account open. Once the debt is transferred to your new credit card, you should close the old account as soon as possible to avoid any additional fees or charges.
Frequently asked questions
The type of account you use for debt consolidation depends on your individual circumstances. However, you may want to note that debt consolidation loans generally provide a fixed interest rate that is applied from the time the loan is approved. Balance transfer credit cards, on the other hand, provide a low or 0% introductory interest rate before standard rates are applied, which can give you an interest-free period. Consider comparing a range of loan and credit card options to find one that suits your personal circumstances.
You will need to check the terms of the specific card to see whether the promotional rate will continue to run until its expiration date. You will be charged a late payment fee and may damage your credit rating.
Once you have transferred your personal loan to a credit card, that debt will be considered credit card debt.
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Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio
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Chris has written 587 Finder guides across topics including:
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