Find out how a balance transfer credit card works and how you can use one to repay your debt faster.
A balance transfer allows you to move your existing credit card debt to a new credit card with a lower or 0% rate of interest. This usually means you can repay your debt faster and save significantly on interest costs. There are many balance transfer offers on the market and the length of the promotional period can vary from 6 to 36 months. Once the introductory period ends, any remaining balances will start to collect interest at the standard purchase or cash advance rate.
You can use this guide to find out how balance transfers work, compare the features and benefits as well as understand how to compare different offers to find the right one for you.
What is a balance transfer credit card?
You can use a balance transfer to move your credit card debt onto a new card from a different lender. If you have several debts, you can also consolidate them under one account with a balance transfer. These cards usually offer a 0% interest rate for a promotional period, which can help you save money as you pay off the debt. At the end of the introductory period you'll be charged a higher interest rate on any debt you have remaining from the transfer.
What you'll find in this guide
Money expert Michelle Hutchison answers the question 'what is a balance transfer?'
Hi, I’m Michelle Hutchison, money expert at one of Australia’s biggest financial comparison websites, finder.com.au. Today I’m going to talk about balance transfer credit cards.
So what is a balance transfer? It’s essentially when you have a debt from one card, say it’s at seventeen per cent, and you move that debt over to a new card offering a balance transfer rate of say, zero per cent.
Unfortunately these low rates won’t last forever and they generally expire and revert to a much higher rate. One consideration is that you can’t generally transfer that balance to a balance transfer credit card in the same institution. For example, say you have an ANZ credit card with a debt on it, you can’t transfer that debt to another ANZ credit card but you may be able to transfer it to another bank or institution.
You can transfer a debt from credit card, store card, charge card, it’s a really good way of consolidating all your debts into one line of credit.
Balance transfers can be a great way to save loads in interest and pay off your credit card debts, and while you can apply for as many as you like, keep in mind that applying for too many in a short space of time can impact your credit file.
Key features and benefits of a balance transfer credit card
Now that you know what a balance transfer is, you can discover some of the key features and benefits of these cards below:
- Introductory period. 0% balance transfer rates are only available for an introductory period which can last from 6 to 24 months (or sometimes longer) depending on the card. The promotional offer starts as soon as your card is activated, not as soon as you make your first repayment.
- Revert rate. When the introductory period ends, the interest rate will revert to the standard purchase or cash advance rate. Considering the revert rate, it's best to repay your balance in full before the interest applies. Check out our guide for more information about balance transfer revert rates.
- Balance transfer fees. When you first conduct a balance transfer, you may be required to pay a one-off balance transfer fee of 1% to 3% of the total amount you're moving to the new card.
Is a money transfer the same as a balance transfer?
No. A balance transfer is when you transfer the debt from your old card to a new one. A money transfer is sending money between two different accounts. You can use finder's balance transfer credit card calculator to discover how much you could save based on your current card's interest rate and the size of your debt. For example, let's say you have an outstanding balance of $5,000 that is collecting interest at 17.00% p.a. If you applied for a card with 0% for 12 months with no balance transfer fee or annual fee, you could save $850 in interest if you pay off the entire debt before the revert rate applies. That's $850 you could use to pay off your debt faster.
How much can you save on interest with a balance transfer?
You can use finder's balance transfer credit card calculator to discover how much you could save based on your current card's interest rate and the size of your debt. For example, let's say you have an outstanding balance of $5,000 that is collecting interest at 17.00% p.a. If you applied for a card with 0% for 12 months with no balance transfer fee or annual fee, you could save $850 in interest if you pay off the entire debt before the revert rate applies. That's $850 you could use to pay off your debt faster.
Compare balance transfer credit cards
How to use the balance transfer calculator to see how much money you could save
Step 1. Enter the total debt/outstanding amount you would like to transfer
Step 2. Provide the interest rate that you are paying on your existing debt (if you don't have your interest rate at the top of your head, the average is around 18-20%)
Step 3. See the 'Amount Saved' column to find out which credit cards will save you the most money. The calculator automatically factors in any balance transfer fees and annual fees associated with each card. Click on the 'Amount Saved' title to sort the cards in ascending or descending order of money saved
Step 4. Compare the credit cards available in the table provided to find the card that suits your needs. If you still want to find out more about a particular credit card, click the ‘More info’ link for a full review on the features and benefits.