How to manage a credit card after you have done a balance transfer
You've done your balance transfer, but what now? Here are some tips to help you make the most of it.
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Getting a balance transfer is simple but it can be challenging to pay off your debt before the introductory period runs out. So, if you've just got a new balance transfer credit card, here you'll find tips on how to make the most of the introductory 0% p.a. interest rate as you pay off your debt.
Close the old credit card account first
After the debt is moved from your old card to the new one, you will need to cancel the old account if you don't want to use it any more. As well as removing any temptation to use the card again, cancelling it will save you money if the card charges an annual fee.
To cancel the old card, call up the credit card provider and request the cancellation. You may also be able to cancel it online. Just remember to double-check there is no balance and make sure any direct debit payments have been transferred to a different account. You can learn more in this step-by-step guide on how to cancel a credit card in Australia.
Get a head start during the introductory period
Balance transfer introductory periods typically last for the first 6 to 24 months from when you get the new card. This is when you have the greatest chance of saving money on your debt, thanks to the low or 0% p.a. introductory interest rate. Some strategies you could use to make the most of this period include:
- Pay off as much as you can each month. The more of your debt you can pay off in the introductory period, the less interest you'll be charged when the 0% p.a. interest rate reverts to a higher standard rate. Depending on the size of your debt, you could even clear it without paying any interest. If you're not sure what you can afford to pay, you can use our free budget planner to work it out.
- Set up automatic payments. Most credit card companies allow you to set up a direct debit from an Australian bank account. This means you can "set and forget" repayments, so that they'll always be made on time and for an amount of money that you can choose and customise.
- Make additional repayments. Remember that you can make more than one repayment a month when it's affordable. For example, if you get a bonus at work or a large tax refund, putting a bit of that money towards your debt will help you avoid high interest charges after the introductory period ends.
Don't use your balance transfer credit card for purchases
- Remember repayment allocation rules. Credit card repayments must go towards the part of your balance that is charged the highest interest rate first. So, if you use your card for purchases, your repayments will go towards paying off that balance before your balance transfer debt.
- Don't assume you'll get interest-free days. While many cards offer interest-free days for new purchases, this feature is usually only available when you've paid off your account balance in full by the due date on your last statement. To put it another way, if you have a balance transfer debt, forget about enjoying interest-free days on purchases.
- Have a plan for emergencies. If an unexpected expense comes up, think carefully about how you'll pay for it. Remember to consider other options, such as savings, or factor the added cost into your card repayments. If you do end up using your balance transfer card, check out our guide on managing new purchases when you have a balance transfer.
Weigh up your options at the end of the introductory period
If you've found yourself with unpaid debt at the end of the introductory period, you have several options:
- Pay off the balance on the existing card. If you stick with the current card, the remaining balance transfer debt will be charged interest at a higher, ongoing rate – sometimes known as the revert rate. This will be much higher than the 0% p.a. introductory rate, so you'll need to think about how long it will take to pay off the rest of the debt and whether it is worth it. You can use a credit card repayment calculator to save time working this out.
- Apply for another balance transfer. If you want to get a 0% p.a. interest rate for longer, you could look at applying for another balance transfer. But be aware that any applications will be subject to approval – and having several credit card applications in a short amount of time could hurt your credit score. As credit card providers don't usually accept balance transfers from the same issuer, you may also have fewer options when you want to get a second balance transfer. Learn more in this guide to getting a second balance transfer.
- Consider a personal loan. Personal loans typically have lower interest rates than the revert rates for balance transfer credit cards. So if you still have a lot of debt and want to save on interest charges, another option is to look at consolidating the debt with a loan.
Balance transfer credit cards can be a worthwhile consolidation tool, but only when used properly. Plan your strategy, make regular repayments and follow the above simple tips to ensure you get the most out of your balance transfer.
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