Ask Finder: When do I have to pay an annual fee on a balance transfer card?

Posted: 9 January 2019 8:34 am

How do 0% p.a. balance transfer offers work if the new credit card has an annual fee?

Hi guys,
I’m looking to get a balance transfer card for my debt and just trying to understand how it works when there is an annual fee for the card. When do I have to pay this fee and will the 0% interest rate apply to it?
Debt consolidator

This is a really important question to ask when you're comparing credit cards, because an annual fee can have an impact on your repayments and the potential savings you get from a 0% p.a. balance transfer offer.

If you get a balance transfer card that has an annual fee, it will usually be charged when you first activate the account, then once per year on the anniversary of that date.

As the annual fee is a new charge, it's not eligible for the introductory 0% p.a. balance transfer interest rate. This means the annual fee will attract interest charges at the card's purchase rate until you pay it off.

In the case of 0% balance transfer cards, the annual fee will also affect your repayments. This is because credit card repayments are automatically put towards the part of your balance that attracts the highest interest rate first.

As an example, say you transferred $3,000 to a card that offered 0% p.a. on balance transfers for 14 months and had a $150 annual fee. If you made a repayment of $150, it would only be put towards the annual fee, leaving you with your original $3,000 debt.

If you made a higher repayment of $300, then $150 would go towards the annual fee and $150 would go towards your balance transfer debt.

This example assumes your repayment is made before the annual fee has accrued any interest. If there were interest charges, they would also be paid before any of your money went towards your balance transfer debt.

(Side note: If you're comparing balance transfer cards on Finder, the annual fee is factored in to the "Amount saved" column on the comparison table).

Bottom line? If you get a balance transfer card with an annual fee, aim to pay it off as quickly as possible. That way, you can focus on clearing your actual balance transfer debt during the 0% p.a. interest rate period.

If you want to avoid annual fees altogether, you could also compare credit cards that offer both a 0% p.a. balance transfer and no annual fee. You can also use the credit card repayment calculator to work out how much you need to pay each month to make the most of the interest-free period.

Ask Finder is a regular column where Finder's expert writers answer your questions. All rates and fees are correct at time of publication and we only give general advice.

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