Save money on interest charges by consolidating your debts with a balance transfer card, but watch out for high cash advance revert rates that often apply once the promotional period ends.
At the end of the promotional period, a higher standard interest rate will typically be charged for any remaining debt from the transfer. This will usually be at the card’s purchase rate or cash advance rate. Since cash advance rates are often the highest applicable credit card interest rates, your debt repayment plan could backfire on you if you’re not careful.
Compare balance transfer credit cards that revert to cash advance rate
To help illustrate the difference your revert rate can make, let’s imagine that you have a $5,000 credit card debt you want to pay off, and you're comparing 2 balance transfer cards that offer 0% interest for the first 12 months. The main difference between these cards is that one reverts to a low standard purchase rate of 13.99% p.a. while the other reverts to a cash advance rate of 21.99% p.a.
If you budgeted to pay off your debt in equal monthly payments over 24 months, you would need to pay the following interest after the promotional period ends:
- Card that reverts to purchase rate. You would pay 13.99% p.a. on the remaining balance of $2,500, which equals $181 over 12 months.
- Card that reverts to cash advance rate. You would pay 21.99% p.a. on the remaining balance of $2,500, which equals approximately $299 over 12 months. That’s an extra $118 compared to the other card.
How can I tell if a balance transfer offer reverts to the cash advance rate?
There are several ways you can find out if a balance transfer card reverts to the cash advance rate. The following are the most common ways to figure this out:
- Main offer details. Some balance transfer offers outline the revert rate as part of their promotion. For example, the offer may say “Pay 0% on balance transfers for 12 months (reverts to 21.99% p.a.).”
- Fine print. Credit card providers are required to include information about the revert rate in the terms and conditions of their offer. Usually, this will include the specific rate applicable at the time, such as “reverts to the cash advance rate of 21.99% p.a.” although sometimes it may say “reverts to the standard variable cash advance rate”.
- Key facts sheet. Providers are required to make available a key facts sheet for every credit card they offer. This sheet includes details of the rates and fees for the card, so you’ll be able to see the introductory balance transfer rate as well as the standard variable rates for the card.
Other important details about balance transfers and cash advances
There are some other things you should know about balance transfers and cash advances:
- Balance transfers as cash advances. Aside from the balance transfer offers you may have access to as a new cardholder, you can also request a balance transfer to an existing credit card. With some cards, such a balance transfer could be treated as a cash advance and thus be subject to the cash advance rate from the time of the transfer.
- Cash advance transactions. Cash advances typically refer to ATM withdrawals made on your credit card, but also include cash equivalent transactions such as the purchasing of gift cards and prepaid cards, gambling items, travellers’ cheques and foreign currencies. Fund transfers and certain bill payments are also considered cash advances. Aside from immediately attracting interest fees at the cash advance rate, a cash advance fee of about 2-3% also usually applies.
- Interest-free days. This is a generic credit card benefit, and the standard “55 interest-free days” feature means that you can enjoy up to 55 interest-free days on eligible purchases. See our guide to learn what this really means. Many cards require that you pay off your account balance in full for the previous month to enjoy this feature. This might mean that making new purchases on a balance transfer card could immediately accrue purchase interest fees as long as your balance transfer isn’t paid up.
- Allocation of repayments. It is important to note that credit card reforms now clearly define the allocation of repayments to mean that your transaction with the highest interest rate will be paid off first, followed by the transaction with the second highest interest rate, and so on. This means that your repayments will always be used to repay any cash advances first, followed by purchases, and lastly balance transfers where your balance transfer offer rate is low or 0%.
While balance transfer offers can often help with debt consolidation by reducing your interest component, ideally you should aim to repay your full balance within the promotional period. This will ensure that you don’t get stuck with new mounting interest fees once the revert rate kicks in. As such, it is important to compare balance transfer card offers and choose the one with an introductory period that best suits your needs.
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