Want a balance transfer card? Check the revert rate first

Amy Bradney-George 10 October 2017

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Avoid high costs at the end of your 0% balance transfer period by checking the revert rate before you apply.

If you want to get a handle on your credit card debt, switching to a 0% balance transfer card could help you save on interest charges during the introductory period. But one of the key features that’s often overlooked on balance transfers is the interest rate that applies after the introductory period ends. This can have a huge impact on how affordable a card is when you’re still paying off your balance transfer debt.

Usually, the promotional 0% balance transfer rate will revert to the card’s standard variable purchase rate or cash advance rate. But credit card providers may vary the standard balance transfer revert rate at any time, which could have a big impact on the overall affordability of a card.

For example, we recently noticed that the 0% for 24 months balance transfer offer available on the St.George Vertigo Platinum reverts to the cash advance rate, which is currently 21.49% p.a. Previously, balance transfers to the Vertigo Platinum would revert to the low ongoing purchase rate (currently 12.74% p.a.).

Unfortunately, the majority of credit cards now revert to the standard variable cash advance rate. But getting a card that reverts to a purchase rate or a competitive “standard balance transfer rate” – such as the Bankwest Breeze or Westpac Low Rate – could save you a lot of money on interest charges if you’re still paying off your debt at the end of the introductory period.

To put this in perspective, say you had a $5,000 credit card debt and balance transferred it to a card offering 0% for 24 months. If you paid $150 off this card each month, you’d be left with a debt of $1,400 at the end of the introductory period.

If your credit card reverted to a cash advance interest rate of 22% p.a., it would take another 11 months to repay this debt and cost you a total of $149.81 in interest charges. But if a purchase rate of 13% p.a. applied at the end of the 0% balance transfer period, you could pay off the remaining debt in 10 months and would only be charged $84 in interest. That’s a difference of 1 month of repayments and $65.81 in interest charges.

Keep in mind that this scenario is just focused on paying down the existing debt. So if you’d made other purchases within the 24-month introductory period, you could end up paying more interest for longer. If the card you choose has an annual fee, you’ll also have to factor that into the overall costs and repayments.

Regardless of these factors, getting a balance transfer card that reverts to a purchase rate will cost you less in interest charges at the end of the 0% period compared to one that reverts to the cash advance rate. So even if you get a card that offers 0% on balance transfers for 24 months, make sure you check what interest rate will apply at the end of the honeymoon period and factor that into your repayments to make sure you get the most value out of the deal.

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