overdrawn credit card

Overdrawn credit card? Consider a balance transfer

How to manage an overdrawn credit card by consolidating your debt with a balance transfer.

Expenses can pile up sometimes, and reaching your credit limit can become a common occurrence if you don’t carefully watch your account balance. It’s not a good situation to be in, and can lead to debt and negative marks on your credit file. If you’ve overdrawn on your credit card and are struggling to repay your debt, a balance transfer with a 0% interest rate could help you consolidate your balance faster. Read this guide to find out what happens when you overdraw on your credit card and how a balance transfer could help you get your finances under control.

What happens when I overdraw on my credit card?

Going over your credit limit can have unpleasant consequences. This can vary between cards and providers but some of the common outcomes include:

  • Overlimit fees. Typically, your card provider may charge you an overlimit fee when you go beyond your credit card limit, which is often a flat fee for the statement period although some lenders may impose the same fee for each transaction exceeding your limit. Following the 2012 credit card reforms, banks must disclose this fee in your contract and you have the right to opt out of the option to exceed your credit limit whenever you like. Opting out, however, will result in your transactions being declined.
  • Declined transactions. If you choose to not have the option to exceed your credit limit, your card will be declined once its credit limit is exceeded. While the price could be embarrassing, any direct debits or automatic payments that may come through during this time will also be declined, which may result in late payment fees by your service provider or cancellation of services (such as if your electricity payment is denied).
  • Interest charges. There is no direct interest penalty for exceeding your credit limit, but some cards deem you ineligible for interest-free days on purchases if you don’t repay your balance in full for two consecutive periods. This means your interest fees can be retroactively charged for the period and can mount up very quickly in the next period if you don’t repay your full balance for the current statement cycle.
  • Ongoing debt. Inadvertently, regularly maxing out your credit card spells ongoing debt if you’re not able to repay the full amount each month. Carrying an outstanding balance on your credit card can lead to heavy interest payments and create even greater debt.

Which lenders let you spend over your credit limit?

When could a balance transfer help?

If you have overdrawn on your credit card account because of ongoing debt issues, it may be worthwhile to consider moving your balance to a balance transfer credit card with a low or 0% introductory interest rate. This will help you save on interest charges so that you can pay off your original debt sooner. If this sounds like a good idea, consider these possible balance transfer offers:

  • Short-term balance transfers. If you have a small debt which you can confidently repay in a short time, a short-term balance transfer should suffice. Short-term balance transfer offers typically start at 0% balance transfer interest for 6 months.
  • Long-term balance transfers. If your debt is going to take longer to chip away, consider balance transfers for a longer term. A 0% balance transfer interest for 24 months is an example of a long-term balance transfer, but some can last for 12 to 18 months as well.
  • Balance transfer and purchase rate offers. If you plan to keep using the card for new purchases while paying off the balance transfer, consider getting a credit card with both a promotional balance transfer and purchase rate offer to help you effectively save on all interest. However, if you’re concentrating on paying down your debt, a card with a low purchase rate might not be a wise option.

Other factors to consider before conducting a balance transfer

If you have decided that a balance transfer is the right option for you, be sure to consider the following factors before you apply.

  • Settling the overlimit amount. Some credit providers consider a card to be in default once you’ve exceeded your credit limit, and may restrict its facilities until you have paid the amount to return it to within its limit. On the other side of things, this will also likely cause your balance transfer application to be denied because the account you are trying to transfer a balance from is “not in good order”. While some card providers do not explicitly state this, it is advisable that you pay your account down to within its credit limit before applying for a balance transfer.
  • Standard interest rates. The standard interest rates are the rates that your new credit card will revert to once the introductory period is over. Make sure you understand and can live with these rates in the event you’re unable to clear your balance in full before the introductory period ends if you apply for a 0% balance transfer card.
  • Your new credit limit. This is important too, because you don’t want to face the same problem of maxing out your new credit card. It would be preferable if your new credit limit is higher than the current one so that it can accommodate your full balance transfer request. Some balance transfer credit cards only allow you to balance transfer amounts up to a fixed percentage of your new card limit, such as up to 70% or 90%, so it’s important that you ensure that the new credit limit is larger than your existing debt.
  • Annual fees. Make sure your new card’s annual fees don’t outweigh its benefits, and you are saving more on interest than you’re paying in fees.
  • Balance transfer fees. Similarly, this cost (which is typically 1-3% of your balance transfer amount) should be factored into your calculations. The balance transfer would not be worthwhile if you had to pay a high annual fee and balance transfer fee for it, in which case you might be better off sticking to your current card and paying it off.
  • Credit rating. Most credit providers will require that your credit rating be very good or excellent before approving your balance transfer application. If your credit rating is not in a good state at this point, it may be advisable that you defer any credit card applications because they could further hurt your credit score.

Alternative ways to deal with overdrawn accounts

There are other options available apart from a balance transfer, including:

  • Making additional repayments. This can be an effective way of staying within your credit limit. By making repayments twice a month instead of monthly, or more often if necessary, you can successfully avoid maxing out your card.
  • Requesting a credit limit increase. You may be eligible for a credit limit raise if your credit score is good and you’ve had a healthy history of making regular repayments with this card provider. You can usually request an increase in your credit limit online or by contacting your provider over the phone.
  • Contacting your provider. It is often a good move to call your credit provider for a chat. If you explain your circumstances, they are usually more than willing to discuss your options and offer possible solutions in order to retain your business.

Overdrawing on an account is never fun, but there are several ways to prevent this. If you’re struggling with debt, a balance transfer may help provide the breathing room you need for a period of time. However, a long-term solution may involve seeking help for debt management.

Compare balance transfer credit cards

Rates last updated August 20th, 2017
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% p.a.

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Name Product Balance transfer rate (p.a.) Purchase rate (p.a.) Annual fee Amount Saved Product Description
NAB Premium Card - Exclusive Offer
0% p.a. for 24 months
19.74% p.a.
$90 p.a.
Exclusive to finder.com.au, enjoy a no BT fee, long-term balance transfer offer with platinum privileges, including travel insurance.
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
0% p.a. for 18 months
20.74% p.a.
$129 p.a.
Apply by 31 October 2017 to receive a long-term, no fee balance transfer and a $129 Virgin Australia Gift Voucher each year.
St.George Vertigo Platinum
0% p.a. for 20 months
12.74% p.a.
$99 p.a.
Offers complimentary travel insurance, complimentary purchase insurance and access to a 24/7 personal concierge service.
Citi Rewards Platinum Credit Card
0% p.a. for 24 months with 1.5% balance transfer fee
20.99% p.a.
$49 p.a. annual fee for the first year ($149 p.a. thereafter)
Offers a long-term balance transfer. Earn extra points on eligible international spend, plus complimentary travel insurance.
St.George Vertigo Visa
0% p.a. for 14 months
13.24% p.a.
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
Receive up to 55 days interest-free on purchases and the ability to make contactless payments with Visa payWave technology.
ANZ Platinum Credit Card - Exclusive Offer
0% p.a. for 12 months
0% p.a. for 3 months (reverts to 19.74% p.a.)
$0 p.a. annual fee for the first year ($87 p.a. thereafter)
Exclusive to finder, receive 0% p.a. interest on purchases for 3 months and 0% p.a. on balance transfers for 12 months with no balance transfer fee.
HSBC Platinum Credit Card
0% p.a. for 22 months with 2% balance transfer fee
19.99% p.a.
$99 p.a.
Earn 1 Reward Point per $1 of eligible spend and receive complimentary travel and purchase protection insurances.
Bank of Melbourne Vertigo Platinum
0% p.a. for 20 months
12.74% p.a.
$99 p.a.
Get a range of complimentary insurance covers, access to a 24/7 concierge and up to 55 days interest-free on purchases.
BankSA Vertigo Visa
0% p.a. for 18 months
13.24% p.a.
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
Get up to 55 days interest-free on purchases and be protected by a 24/7 fraud monitoring service.
NAB Low Fee Card
0% p.a. for 16 months with 2% balance transfer fee
19.74% p.a.
$30 p.a.
Receive complimentary purchase protection insurance, special offers from Visa Entertainment and up to 44 days interest-free on purchases.
HSBC Low Rate Credit Card
0% p.a. for 15 months with 2% balance transfer fee
13.25% p.a.
$55 p.a.
Receive up to 55 days interest-free on purchases. Also enjoy exclusive offers with the home&Away Privilege Program.
Virgin Money Low Rate Credit Card
0% p.a. for 12 months
11.99% p.a.
$99 p.a.
Receive up to 44 days interest-free on purchases and the optional insurance coverage of CreditShield Edge.
NAB Low Rate Platinum Card
0% p.a. for 16 months with 2% balance transfer fee
13.99% p.a.
$100 p.a.
Enjoy the protection of 7 complimentary insurances including overseas travel and purchase protection insurance.
ANZ Low Rate Platinum
0% p.a. for 16 months with 2% balance transfer fee
11.49% p.a.
$99 p.a.
Enjoy platinum benefits with exclusive discounts, complimentary travel and purchase insurances and a 24/7 personal concierge.
American Express Essential®  Credit Card
0% p.a. for 12 months with 1% balance transfer fee
14.99% p.a.
$0 p.a.
Receive a $50 credit when you apply online, are approved and spend $750 on your new card within the first 3 months of card membership.
Woolworths Everyday Platinum Credit Card
0% p.a. for 14 months
19.99% p.a.
$0 p.a. annual fee for the first year ($49 p.a. thereafter)
Receive a $100 eGift Card when you apply by 30 September 2017 and make an eligible purchase by 31 October 2017.
American Express Explorer® Credit Card
0% p.a. for 12 months with 1% balance transfer fee
20.74% p.a.
$395 p.a.
Receive a $400 Travel Credit every year and up to two entries per year to the American Express Lounge at Sydney International Airport.

Compare up to 4 providers

Complete guide and comparison for balance transfer credit cards

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