You've done your balance transfer, but what now? Here are some tips to help you make the most of it.
A balance transfer credit card can help you consolidate existing debt and save on interest charges by offering an introductory low or 0% p.a. interest rate. While getting a balance transfer is simple, it can be challenging to pay off your debt before the introductory period runs. So, if you've just got a new balance transfer credit card, use this guide to find out how you can manage your account and pay off your debt as quickly as possible.
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.
Can I repay my credit card debt before the balance transfer period ends?Yes, you can repay your balance as early as you'd like. In fact, it's wise to clear your debt as fast as possible to avoid the revert rates and any additional interest costs. Unlike a fixed schedule personal loan or home loan, there are no penalties for clearing your credit card debt ahead of time.
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 a remaining debt at the end of your introductory period, you might want to consider doing a second balance transfer. However, if your credit history shows that you were unable to repay your debt during the promotional period, this may mean lenders are less likely to approve your application. Applying for too many credit cards and rejected applications can have a negative impact on your credit file, so this is also something important to consider if you're looking at using a second balance transfer as a back up.
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.