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How to manage new purchases on a balance transfer credit card

Even with a 0% p.a. interest rate on your balance transfer debt, making new purchases could affect your repayments. Here’s what you need to know to stay on track.

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While you can use a balance transfer credit card for purchases, you’ll probably be charged interest on any new transactions. This is because the promotional 0% interest rate applies to the debt you’ve transferred to the card and not to new purchases.

What’s more, your repayments will go towards your purchase debt before your balance transfer debt, because credit card payments are allocated to the balance with the highest interest rate first. In the worst-case scenario, you could end up with a balance transfer debt at the end of the 0% p.a. period (when a much higher interest rate applies) – plus a purchase debt that also collects interest.

To avoid this scenario, it’s important to understand how repayments work when you have a balance transfer debt and purchase debt on the same card so that you can manage your repayments in a way that works for you.

How are repayments allocated on a 0% balance transfer credit card?

Credit card repayments are allocated based on the portion of your balance that attracts the highest interest rate. This is the case for Australian credit cards opened on or after 1 July 2012.

So if you have a card with a promotional 0% p.a. interest rate on your balance transfer debt, your repayments will go towards any part of your account balance that is being charged interest first. Then, if there is any money remaining from your repayment, it will go towards your balance transfer debt.

Example of how a new purchase could affect your balance transfer

Say you’ve transferred a debt of $3,000 onto a new credit card that offers 0% p.a. for 12 months on balance transfers and has no annual fee. At the end of this period, the interest rate reverts to a standard variable purchase rate of 19.99% p.a. Let’s also assume you’ve planned to pay $250 per month off the card, which is just enough to clear the debt within 12 months if there are no other charges.

Based on these details, if you made a purchase of $1,500 on this card, you would have to make 7 monthly payments to clear this debt and it will cost you $93.98 in interest. That leaves you with about 5 months of your 0% p.a. balance transfer rate.

So, if you continued to pay only $250 per month off your card, you’d have a balance transfer debt of $1,750 at the end of the introductory period. Assuming you continued with your $250 monthly repayments after that, it would take you another 8 months to pay off your debt and cost you around $124.63 in interest.

Tips to manage a purchase debt on your balance transfer card

couple with shopping bags
If you need to use your balance transfer card for new purchases, here are a few options for managing the debt and avoiding the pitfalls of the scenario above:

  • Pay off the purchase as quickly as possible. Aim to make higher repayments so that you can clear your purchase balance more quickly. Once that’s paid off, your repayments will go towards your balance transfer debt and you can make the most of the 0% interest period.
  • Consider a card that offers 0% on balance transfers and purchases. If you’re looking at balance transfer cards and know you also need to make new purchases, you could look for a card that offers introductory 0% interest rates for both balance transfers and purchases. Just keep in mind that the introductory periods could be different for existing debts and new debts on the card.
  • Get a credit card with a long balance transfer period. If you know you’ll need to use your card for purchases at some point, look at cards that offer a long balance transfer period, such as 0% p.a. for 24 months.
  • Look for a card with a low purchase rate. Getting a balance transfer credit card with a low standard variable interest rate for purchases can help keep your interest charges down so you can pay off that debt faster, then get back to dealing with the balance transfer debt.

Compare credit cards that offer 0% on balance transfers and 0% on purchases

Data indicated here is updated regularly
$
% p.a.
Name Product Balance transfer rate Purchase rate (p.a.) Annual fee Amount saved
Virgin No Annual Fee Credit Card - Purchase Offer
0% p.a. for 9 months
0% for 9 months, reverts to 18.99% p.a.
$0 p.a.
Offers an introductory 0% p.a. for 9 months on purchases and balance transfers (with no BT fee) for an ongoing $0 annual fee.
NAB Low Rate Credit Card
0% p.a. for 6 months with 2% balance transfer fee
0% for 6 months, reverts to 12.99% p.a.
$59 p.a.
Receive an introductory 0% p.a. interest rate for 6 months on purchases, Visa Entertainment offers and a competitive $59 ongoing annual fee.
St.George Amplify Platinum
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 19.74% p.a.
$0 p.a. annual fee for the first year ($99 p.a. thereafter)
Save with 0% p.a. interest rates on purchases and balance transfers. Plus a $0 first-year annual fee.
St.George Vertigo Classic Rainbow
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 13.99% p.a.
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
All the great low cost features of the Vertigo Visa with a rainbow design in support of the LGBT community.
St.George Vertigo Classic
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 13.99% p.a.
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
Get 0% p.a. promotional purchase and balance transfer rates and save with a first-year annual fee waiver.
Bank of Melbourne Amplify Platinum
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 19.74% p.a.
$0 p.a. annual fee for the first year ($99 p.a. thereafter)
Enjoy 0% p.a. on purchases and balance transfers along with a $0 first year annual fee waiver.
BankSA Vertigo
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 13.99% p.a.
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
Enjoy a 0% p.a. interest rate for up to 22 months on balance transfers and up to 7 months on purchases. Plus, $0 first-year annual fee.
BankSA Amplify Platinum
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 19.74% p.a.
$0 p.a. annual fee for the first year ($99 p.a. thereafter)
Save with a 0% p.a. interest rate for up to 22 months on balance transfers and up to 7 months on purchases. Plus a $0 first-year annual fee.
Bank of Melbourne Vertigo Classic
0% p.a. for 22 months with 1.5% balance transfer fee
0% for 7 months, reverts to 13.99% p.a.
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
Save with 0% p.a. for 7 months on purchases, 0% p.a. interest for 22 months on balance transfers and a $0 annual fee for the first year.
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Using a different credit card for purchases

You could also decide to make your purchases on a completely different card. This will keep your balance transfer debt and purchase debt completely separate, meaning you’ll be able to make the most of the 0% p.a. interest rate on your balance transfer.

But with this option, you will need to make separate repayments for both your credit cards. You’ll also still be charged interest on your purchases – unless you happen to be eligible for interest-free days on the card you use for purchases (i.e. if you’ve paid the balance in full for at least two statement periods).

In an ideal scenario, you wouldn’t make new purchases when you’re paying down debt on a balance transfer credit card. But if there is a situation where you need to use your card, understanding how repayments work and using some of the tips above will help you reduce the risk of more interest charges by planning your repayments.

Pictures: Shutterstock

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Credit Cards Comparison

Data indicated here is updated regularly
Name Product Purchase rate (p.a.) Balance transfer rate Annual fee
HSBC Platinum Credit Card - Balance Transfer Offer
19.99% p.a.
0% p.a. for 22 months
$129 p.a.
Save with a 22-month balance transfer offer. Plus, lounge passes, travel insurance and an annual fee refund when you spend an eligible $6k/year.
ANZ Low Rate
12.49% p.a.
0% p.a. for 22 months with 1.5% balance transfer fee
$0 p.a. annual fee for the first year ($58 p.a. thereafter)
Save with 0% p.a on balance transfers for 22 months (with a 1.5% BT fee) and $0 first year annual fee. Plus a 12.49% p.a. purchase interest rate.
Bankwest Zero Platinum Mastercard
17.99% p.a.
2.99% p.a. for 9 months
$0 p.a.
Offers a $0 annual fee, 0% foreign transaction fees, complimentary international travel insurance and a balance transfer offer.
ANZ Frequent Flyer Black
20.24% p.a.
20.24% p.a.
$425 p.a.
Earn 100,000 bonus Qantas Points, 75 bonus Status Credits and $150 back when you spend $3,000 in the first 3 months with this premium card.
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* The credit card offers compared on this page are chosen from a range of credit cards finder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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