Save money on interest charges by consolidating your debts with a balance transfer card, but watch out for high cash advance rates that often apply once the promotional period ends.
Low-rate or 0% balance transfer offers let you move existing debt onto a new credit card so you can save money on interest charges for an introductory period. At the end of the introductory period, any remaining balance transfer debt will be charged interest at a higher, standard rate. This "revert rate" is usually the card’s purchase rate or cash advance rate.
Since cash advance rates are often the highest applicable credit card interest rates, you could end up paying a lot more interest on your remaining debt. Use this guide to learn more about cash advance revert rates and how you can factor them into your comparison when you're looking for the right balance transfer card for you.
Compare balance transfer credit cards that revert to cash advance rate
What’s the difference between balance transfer cards that revert to the cash advance rate and purchase rate?
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 be charged interest on the debt that remained after 12 months. Here's the different in interest charges based on each card's revert rate:
- Card that reverts to purchase rate. You would be charged 13.99% p.a. on the remaining balance of $2,500, which would add up to about $181 in interest over 12 months.
- Card that reverts to cash advance rate. You would be charged 21.99% p.a. on the remaining balance of $2,500, which works out to about $299 in interest 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, this type of transfer could be treated as a cash advance, which would attract 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. Interest-free days typically don't apply to either balance transfers or cash advances. You also won't usually be eligible for interest-free days on purchases if you're carrying a balance transfer debt.
- Allocation of repayments. It is important to note that credit card companies must allocate repayments so that the part of your balance which is charged the highest interest rate is paid off first, followed by the debt with the second highest interest rate, and so on. This means that your repayments will be used to repay any cash advances – or balances that are charged the cash advance interest rate first – followed by purchases. If you have a balance transfer debt with a promotional 0% p.a. interest rate, this part of your balance will be paid off after any other part of your balance that is charged interest.
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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