Explore your options when you want to earn rewards and pay off existing debt on a new credit card.
Although there is a wide range of reward credit cards that offer you points per $1 spent, none of them give you points for a balance transfer. This is because balance transfer transactions are different from the regular purchase transactions that earn you rewards.
With purchases, you make a payment for items or services using your card. But with balance transfers, your new provider essentially pays out your existing debt so that it can be moved to the new card. Most issuers classify this type of transaction as a cash advance and exempt it from earning points because it is not a regular purchase. But if you really want to get both rewards and a 0% balance transfer offer, you can use this guide to weigh up your options and decide whether or not it’s worth it for you.
Would it be worth earning points on a balance transfer?
The short answer is not really. Even if you could earn 1 point per $1 on a balance transfer, you’d have to transfer a debt of $10,000 or more just to redeem your points for a $100 gift card. You’d also have to factor in the following costs and risks:
- Annual fee. Reward credit cards typically have annual fees ranging from $90 to $450 or more. So in most cases, this cost would cancel out the value of the points straight away.
- Balance transfer fee. Depending on the card, you could pay a one-off processing fee worth 2–3% of the debt. That would be an extra $200–$300 on a $10,000 balance transfer, meaning you’d likely pay more than you’d earn from reward points.
- Balance transfer interest charges. Even if the card you got had a 0% interest rate for 12 months, if you transferred a debt big enough to get value from the points then it’s also likely you wouldn’t be able to pay it off during the introductory period. Any debt remaining after that time would be charged interest at the standard rate for your card, which is usually between 19% and 22% p.a.
Basically, if you have existing credit card debt to pay off, you’re usually better off getting a 0% balance transfer credit card and focusing on clearing your balance without worrying about points. That allows you to save as much money on interest as possible.
Once you’ve paid off your debt, you could consider getting a card that earns points for your everyday spending. Just remember that these cards offer the most value when you pay your balance in full each month.
What about credit cards that offer 0% on balance transfers and introductory bonus points?
Some credit cards offer new customers both introductory 0% balance transfers and bonus points. But to get the bonus points, you usually need to spend a specific amount on new purchases when you first get the card. For example, a card might offer 50,000 bonus points if you make $3,000 worth of eligible purchases in the first 3 months.
If you’ve already balance transferred a debt to the card, meeting this spending requirement will add to your balance. Plus, new purchases will be charged interest at the purchase rate for that card, which could be as high as 22% p.a.
How to decide if it’s worth getting a credit card with 0% on balance transfers and bonus points
If you really want to get points and a balance transfer, these are the key factors you’ll need to consider:
- What can you get with the bonus points? Check out the rewards or frequent flyer program to work out the value of the bonus points. Sometimes these offers can be worth hundreds of dollars, although it does depend on how you use them.
- What are the bonus point spending requirements? Look at how much you need to spend and how long you have to meet this requirement. Is it reasonable considering your existing balance?
- Can you pay off your debt during the balance transfer promotional period? Consider how long you’ll get the promotional balance transfer rate based on the size of your debt. For example, if a card offered 0% interest for 6 months and you had a debt of $6,000, you’d have to make repayments of $1,000 to avoid interest charges on this debt.
- Can you afford to pay off both your balance transfer and the debt from any spending you do to get bonus points? When you use a credit card for both a balance transfer and new purchases, it’s likely you’ll have different interest rates for each part of the balance. When this happens, any payments you make will automatically go towards paying off the debt with the highest interest rate (usually your new purchases). So if you can’t afford to pay off all your debt during the introductory period, you could end up paying even more later on.
Is it worth getting a balance transfer and bonus points?
Ester wants to switch from her current credit card to one that earns frequent flyer points. She has a current credit card debt of $6,000 that she’d like to pay off through a balance transfer promotion, so she decides to look for a card that offers 0% on balance transfers and bonus points.
After comparing cards, Ester finds one that has a balance transfer offer of 0% p.a. for 12 months and offers a bonus 50,000 points if she spends $3,000 on new purchases in the first 3 months. If Ester makes the $3,000 worth of purchases, it would bring her balance up to $9,000. While she’d pay 0% on the initial $6,000 balance transfer debt, the new card would apply a standard interest rate of 19.99% p.a. to the $3,000 she spent on new purchases.
Ester calculates that she can afford to pay $500 per month towards her credit card balance. At this rate, it would take her 7 months just to pay off the $3,000 worth of purchases. She’d also pay around $187.95 in interest on this portion of her balance.
If she chose to do this, she’d only have 5 months of 0% interest left on her balance transfer debt of $6,000. To pay this debt off before the introductory period ended, Ester would need to make monthly repayments of $1,200. If she couldn’t repay it in that time, her remaining balance would attract interest charges that could lead to even more debt.
In this case, Ester decides it’s more affordable for her to focus on paying off her existing credit card debt. After that’s done, she’ll compare her options again to see if a frequent flyer credit card could work for her.
When could it be worth getting a 0% balance transfer card with bonus points?
Here are some scenarios when getting a credit card that has both a 0% on balance transfers and bonus points could be worth it:
- If you know you can pay off the debt (including bonus point spending) during the 0% period
- If you want to cancel your current account and only have a small amount owing
- If you don’t need the 0% balance transfer offer
- If you decide the 0% offer and card work for you, even if you can’t meet the bonus point spending requirements
Remember that with cards offering two different introductory promotions, your focus should be on the deal that gives you the greatest value based on your circumstances. If you have existing debt, that might mean using the 0% balance transfer offer and not worrying about bonus points.
If you don’t have credit card debt, on the other hand, you can focus on the bonus point offer without worrying about any 0% balance transfer rate. In fact, you may even want to look for a card that offers bonus points and 0% interest on purchases instead.
While balance transfers and reward points both have the potential to give you more value from the card you choose, these features are usually designed to suit different needs. If your goal is to pay off existing debt, focusing on a 0% balance transfer card could help you save money in the process. If your goal is to earn points, getting a new card that offers bonus points will help you get rewards faster. But either way, remember to consider your budget and compare a range of cards so that you can find one that works for you.
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