If you want to clear your credit card debt, you can transfer your balance to a new credit card and pay it off with a low or 0% introductory rate. Use this guide to find out more.
What is a balance transfer credit card?
A balance transfer involves moving your debt from one or multiple credit cards to a different card with a new provider. Usually, the new credit card will offer an introductory low or 0% interest rate on balance transfers that could help you save money. The introductory period can last from 12 to 26 months, after which time any remaining balance will collect a higher revert rate.
You can watch the video below to learn more about how you can use a balance transfer to get your debt under control.
How can I compare credit card balance transfer offers?
There are lots of balance transfer credit card deals available in Australia, but some will offer you greater savings than others. To help you find a balance transfer card that suits your needs, here are the key features to compare:
Balance transfer rate. Most balance transfer credit cards in Australia offer 0% interest for a promotional period, but others will offer a low rate (such as 2.99% p.a.). Generally the lower the interest rate, the more you'll save, but you can use the balance transfer comparison table above to compare cards by the potential interest savings.
Length of introductory offer. The offers vary between cards, but 0% p.a. balance transfers can generally range from 6 months to 26 months. You can also find other low rate balance transfers that last for up to 36 months. You should choose a balance transfer that gives you enough time to pay the balance in full before the higher revert rate kicks in. You can do this by dividing your debt by the number of months in the introductory period. This will show you how much you'd have to pay each statement period to clear the debt before the offer ends. If you don't think you can pay it all in this time, you might want to look for a card with a longer balance transfer offer.
Balance transfer revert rate. At the end of the promotional period, the low or 0% balance transfer interest rate will revert to a higher, standard rate. This is usually the standard cash advance or purchase rate. Although you should aim to pay off your debt before the revert rate applies, you should pay attention to this rate to avoid any nasty surprises when the introductory offer ends.
Balance transfer fee. While not all credit cards charge a balance transfer fee, they have become more common in Australia. This fee typically ranges from 1% to 3% of the total balance transfer amount and is charged when your debt is transferred to the new card. This might not sound like a lot, but it can eat into the potential savings you'd get from the transfer. You can learn more about this fee and compare credit cards that don't charge a balance transfer fee in this guide.
Eligible debts you can transfer. You can usually transfer one or multiple debts from Australian-issued store cards or credit card accounts from a different issuer. Some cards also allow you to transfer debts from personal loans and lines of credit. See our guide to the banks you can and can't transfer between for more information.
Balance transfer limits. Some cards impose balance transfer limits, meaning you can only transfer up to a percentage of your approved credit limit. Depending on the card, this can range from 70% to 100% of your credit limit. If you try to transfer more than the limit, the remaining amount will stay in your old account to collect interest. You can see finder's guide to balance transfer limits for more information.
Annual fee. You'll usually pay an annual fee on a balance transfer card, although some cards waive this cost. When this fee is charged, it is treated as a purchase and attracts the same interest rate as other purchases made with the card. If you pay the annual fee straight away you can avoid interest charges, which will help you make the most of the 0% p.a. balance transfer period. You can compare balance transfer cards with no annual fees on finder to avoid this cost altogether.
How to do a balance transfer in five steps
Whether you want to consolidate your credit cards or pay off a debt for good, here's how you can transfer your balance to a new credit card in just a few steps through finder.com.au.
Compare credit card balance transfer offers Use the credit card comparison table to browse balance transfer offers and click on a column to sort by feature (e.g. "Balance transfer rate"). You can also see how much value you could get from each offer by entering your debt details, clicking "Calculate" and then looking at the "Amount saved" column.
Confirm how much you owe Check your account balance or contact your existing credit card provider and ask for your balance details, including interest charges, annual fees, direct debits or any other costs that may be applied before the balance transfer is complete. This will help you fill out the balance transfer request when you apply for a card.
Submit your application Click the "Go to site" button next to your chosen card and you'll be taken to the bank or card company's secure online application form. Remember to include the details of your existing account and the amount of debt you want to transfer on your application.
Activate your card Once you're approved, you'll need to activate the new card before the balance transfer can be processed. You can usually do this online or over the phone with your new provider.
Confirm the transfer and close your old account The balance transfer may take 1-2 weeks to show up on your new credit card. After that, you can contact your old bank to close the previous card and avoid any further fees or charges.
Mistakes to avoid with balance transfers
Watch out for these traps to make the most of a 0% balance transfer credit card offer.
MISTAKE: Thinking 0% interest means no payments
Even if you're paying 0% p.a. on your balance transfer debt, you still have to make at least the minimum payment for each statement period. This is usually stated as "3% of outstanding balance or $30, whichever is greater", although the percentage and dollar amounts can vary between cards. You can check the minimum payment requirements by looking at review page for individual cards or by looking at the key facts sheet that credit card providers must share with you before you apply.
MISTAKE: Only making the minimum repayment each month
Although you're required to pay a minimum amount each month, it could take years to pay off your entire debt if you only pay this amount. Instead, it's wise to make bigger payments and clear the entire debt before the 0% introductory period ends. How much you'll have to pay each statement period will depend on the size of your debt and the length of the promotional period. As an example, below we've outlined how much you'd have to pay each month to clear a $10,000 debt within 6 to 24 months if you had a 0% p.a. interest rate.
% of total to repay each month to clear debt
What that would equal per month on a $10,000 debt
The key lesson? Budget as much as you can towards paying off your credit card debt while the promotional rate applies. If you can't repay the entire debt in time, it's possible to apply for another balance transfer.
MISTAKE: Making new purchases with your card
If you use your card to make purchases, it will collect the standard purchase interest rate and could make it harder to pay off your debt. Credit card issuers are also required to allocate repayments to the debt that is charged the highest rate of interest on your account. So, if your balance transfer has a 0% interest rate and your purchases collect 19.99% p.a., your repayments will go towards the purchases first rather than your balance transfer. Even if your card has an introductory 0% rate on new purchases, you should concentrate on repaying your debt rather than making more purchases. It's also important to note that interest-free days don't apply to purchases when you're carrying debt from a balance transfer.
MISTAKE: Keeping your old card open
When you get a balance transfer, it's your responsibility to contact your current credit card provider and close the old account. If you don't, you could end up paying account costs for a card you're not using. Before you close the card, make sure the balance is completely transferred or paid in full and move any regular payments (such as direct debits) to another account.
If a balance transfer can help me save money, what's in it for the bank?
Credit card issuers make money when you pay interest, so why would they charge 0% when they could charge 20% or more? Here's why:
The interest rate will eventually revert to a higher rate. As mentioned above, if you don't pay off your entire debt during the promotional period, you'll end up collecting interest at the standard rate for your card. This is usually the purchase rate or cash advance rate, which usually ranges between 12% and 21% or more. Once that happens, your new credit card issuer can potentially make hundreds or even thousands of dollars from you through interest charges.
Persuading you to switch is tough. Australians are reluctant to switch banks and it's often expensive for banks to acquire new customers. Offering a discounted interest rate is a way for banks to attract potential customers.
You'll still have to pay interest on new purchases. While you'll enjoy 0% interest on your balance transfer debt, the standard variable interest rate for purchases will usually apply to any new purchases you make while you're paying off that debt.
Balance transfer credit cards can help you save on interest costs and get your debt under control. As there are so many different balance transfer cards on the market, there is no one best option that works for everyone. Instead, look at the size of your debt, what you can afford to pay each month and the card's features to find the right balance transfer card for you.
Sally McMullen is Finder's credit cards and frequent flyer editor by day and a music maven by night. Her byline can be spotted on Yahoo Finance, Dynamic Business, Financy and Mamamia as well as Music Feeds and Rolling Stone.
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Rates last updated September 18th, 2019
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