Balance transfers: how much can I move?
"I'm thinking about moving some credit card debt to 0% balance transfer card. How much can I move?"
The amount that can be moved to a balance transfer credit card is determined by the cardholder's credit limit.
Most providers specify that cardholders can transfer a percentage of their total limit - often 90 to 95% - and sometimes impose a maximum cap too.
However, new credit card applicants don't find out their credit limit until after they've been accepted.
So how can you estimate the amount you'll be able to transfer?
Before applying: two things to watch
There are two main things to look out for: the rules of the card provider in question and the applicant's credit history.
Card provider rules
Credit limit: Take a look at the top 0% balance transfer credit cards and you'll usually find that they allow cardholders to transfer up to 90 - 95% of the available credit limit.
So if the credit limit on the card was £3,000 they'd accept a transfer of up to £2,850.
Providers keep that extra bit of credit limit to allow them space to add transfer fees, and possibly interest, to the account without exceeding the limit.
How much is granted will largely depend on how much the credit card provider feels comfortable lending but, as we'll see in the next section, it's also dependent on an applicant's credit history.
Maximum transfer limits: In addition to the percentage of credit limit, some 0% balance transfer offers actually reduce the amount their cardholders can transfer even more by adding a maximum transfer amount.
Typically, card providers set this limit around £3,000 or £5,000.
However, a stated maximum doesn't mean cardholders will be able to use 100% of the credit limit.
Generally, card providers with this extra bit of small print stipulate that cardholders can move X% of the credit limit or £X whichever is lower.
The idea, then, is to impose a cap on those with the highest credit limit. Again, though, card providers are under no obligation, just because the maximum exists, to offer that amount as a credit limit.
Competition limits: Finally, balance transfer are limited in the sense that cardholders can't move balances between credit cards issued by the same banking group.
For example, a cardholder has debt on an MBNA credit card they can't move it to a Virgin Money credit card.
Here are some more examples of cards linked by a single controlling company:
- Issued by MBNA: any MBNA, Virgin Money*, AA credit cards.
- Issued by HSBC: any HSBC, M&S Money, Waitrose, HFC Bank, First Direct credit cards.
- Issued by HBOS: Halifax, Bank of Scotland credit cards
- Issued by RBS: any RBS, Natwest, Mint, Ulster Bank credit cards.
* Virgin Money will begin managing their own credit card book (i.e. their cards won't be issued by MBNA) at some point in 2014.
In sum: To sum up, to find out how much a credit card may allow you to move:
- Find credit limit rule usually 90% or 95% of credit limit can be transferred.
- Check maximum transfer limit if there is one.
- Check compatibility you can't move balances within the same issuer.
So, as we've seen, the amount that can be transferred is still dependent on the card holder's credit limit - an amount that's hard to know until after an application is made.
Credit limits vary greatly depending on assessments of credit history and individual circumstances and each lender will have their own procedures and criteria for working out how much they're willing to lend - one provider may choose to lend more or less to the same applicant than another provider for example.
Additionally, the rules providers use to work this out isn't something they freely disclose.
Figures from The UK Cards Association, say that the average credit limit offered to applicants is £5,000.
However, in the sub prime market credit limits can be as low as £500, so as you can see the averages granted can vary considerably on credit history alone.
On the other end of the scale, those with longstanding excellent credit histories and credentials - no missed payments, considerable experience of borrowing, high income - may be more likely to see higher than average limits, which could be from £6,000 right up to £10,000 or more.
These examples are just averages pulled together by grouping classifications of credit history though - they don't represent individual circumstances or how different providers access applications in different ways.
After an application has been made, if it's accepted a credit limit will of been decided, so depending on the offer details (covered above), you'll know how much you can transfer to the new card.
For some, however, knowing the card's credit limit is where the problems start.
Competition in the balance transfer market is strong so it's no surprise that applicants frequently find that the credit limit they're offered is lower than the amount they want to transfer.
Here are three things to consider when dealing with that problem.
1. Move some, not all
If the credit limit isn't enough to move the whole balance of debt or debts that you're looking to reduce the interest rate of, the general rule of thumb is to make use of what has been made available and decide what to do about the rest of the debt later (for example, budgeting repayments to pay off the most expensive debt first).
That's because moving even part of the debt will still save money, even if it doesn't reduce costs to zero.
So let's take a look at a credit card holder with a £5,000 limit who gets a £3,000 credit limit.
Here's a rough estimate of how much they'd pay if they don't move the debt:
|APR||Month repayment||Repaid after...||Total cost|
And here's an estimate of how much they'd pay if they move £3,000 to a 0% card and concentrate on repaying the remaining £2,000 balance (assuming £50 goes to the 0% card and it's later paid off in full with no interest):
|APR||Month repayment||Repaid after...||Total cost|
That's quite a difference.
2. Ask for a limit increase
Many card providers will allow their cardholders to increase their limits, just by asking, after they've held the card for a little while and built up some history of managing the account well.
The problem with this approach is, that while this doesn't apply to all cards, where stipulated balance transfer window periods for 0% promotional offers tend to be short - balances must be transferred during the first 30 to 90 days of the account opening in order for the balance to qualify for the 0% rate.
However, there's no harm in asking and if the increase is fairly minor the card provider could well agree in good time for the balance to be moved.
There are two potential problems to be aware of with this though.
The first is, where window periods are stipulated, the balance must be transferred within 60-90 days. This means the balance must of credited the new account by this time, not simply that the transfer has been initiated.
In other words, check the offer terms carefully and don't over estimate the time you have to move the balance and qualify for the 0% rate.
Secondly, while providers can often increase limits after a customer has held an account for a period of months, sometimes as short as 3 months, it's normally based on the cardholder displaying an ability to manage the account well. In other words, they've spent money on the card, stayed within the credit limit, and made all repayments on time.
Without doing this, the provider has little more than the original application to base any limit increase decision on.
3. Try an alternative offer
The next temptation is to essentially disregard the balance transfer card that has disappointed and go for another 0% or low rate for life.
The big problem with this is that making several applications in quick succession can decrease the possibility of those applications being accepted.
To mitigate that, many choose to wait a few months before making a new application; in that time the original debt is continuing to accrue interest and, on a personal level, you may start to lose momentum.
And then, of course, you might not get the credit limit you'd like again in any case.
Having said all of that, there is an alternative that bypasses the need to apply again.
Negotiating with current lenders to lower an interest rate or looking for an unofficial balance transfer deal from an existing lender could cut the cost of the debt that you can't move without having to go through another application process.
Read more on these deals here.
Here's a final thought on transfers: moving a balance or balances isn't always the end of them.
Just like any other cards, deals with low rates or 0% promotional offers require the cardholder to meet at least the minimum amount, noted here, to be paid back each month and the credit limit to be adhered to.
If not the deal can be withdrawn and missing payments will certainly hurt credit standing in the eyes of future lenders.
Setting up a direct debit to pay at least the minimum is a good way to ensure payments are never late or forgotten.
Also note that any remaining balance will revert to the standard interest rate once the 0% promotional period has ended, as this can often be high it's worth trying to avoid, the aim is to get debt free as quickly as possible.