Everything you need to know about repaying your debt with a balance transfer credit card.
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 12 to 24 months. Once the promotional offer ends, any remaining balances will start to collect interest at the standard purchase or cash advance rate.
If you're wondering how a balance transfer works, you can use this guide to learn the features and benefits of these credit cards and understand what how you can compare different offers to find the right one for you.
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.
Think of it this way. You move your credit card debt from card A to card B with a special rate of interest on card B.
A balance transfer is a feature for new credit card customers. It allows someone who is applying for a credit card to bring their debt from their old card over to the new card under a promotional rate of interest. This is an attractive option because the balance transfer promotional interest rate is almost always lower than the annual percentage rate of interest (apr) charged on their existing credit card.
A lower rate of interest charged on your credit card balance means you pay less money towards covering the interest repayments, and you can pay down the principal balance quicker.
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:
- Promotional period. 0% balance transfer rates are only available for a promotional period which can last from 12 to 24 months depending on the card. The promotional offer starts as soon as your card is activated, not as soon as you make your first repayment. Once this introductory offer ends, a higher revert rate will apply to any remaining debt in the account. This means you should aim to repay your entire debt before the promotional offer ends to avoid interest altogether.
- Revert rate. When the promotional offer ends, the interest rate will revert to the standard purchase or cash advance rate.
- 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.
How much can you save on interest with a balance transfer?
Harry has a credit card with an outstanding balance of $5,000 and his bank is charging 17.00% p.a. interest on this balance. He wants to repay his debt faster without the cost of additional interest, so he applies for a credit card with a balance transfer rate of 0% for 12 months. By transferring to a card with an interest-free offer for the first year, Harry can save $850 in interest repayments. This is now $850 that he can put towards paying down his balance rather than putting towards extra interest costs.
Long-Term Balance Transfer Credit Card Offer
The NAB Premium Card features a balance transfer promotion with a range of platinum benefits.
- 0% p.a. on balance transfers for 24 months on a new NAB Premium Card. BT reverts to cash advance rate after promotional period.
- A one off 3% BT fee applies.
- Receive a range of complimentary insurance covers including overseas travel insurance and 24/7 NAB Platinum Concierge Service.
- Request an additional cardholder at no extra cost.
Compare Balance Transfer Credit Cards
Rates last updated May 29th, 2017.
- HSBC Platinum Credit Card
Balance transfer offer has been changed to 0% p.a. for 22 months and is valid until 31 August 2017.
May 8th, 2017
- Citi Rewards Platinum Credit Card
Balance transfer offer has been extended until 30 June 2017.
May 12th, 2017
- American Express Velocity Platinum Card
Bonus points offer has changed from 50,000 to 100,000 which is valid until 31 July 2017.
May 16th, 2017
Use the balance transfer calculator and discover how much you can save in interest in 4 easy steps
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 on you, the average is around 18-20%)
Step 3. See the 'Interest Saved' column to find out which credit cards will save you the most money. Click on the 'Interest 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.
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Frequently asked questions
Here are some of the questions we get asked about balance transfers, and their answers.
How do I know if I’m eligible for a balance transfer?
What accounts can I include in a balance transfer?
Some providers will even let you transfer a balance from an overdraft account or a personal loan.
How much can I transfer?
Another key question, this all depends on your approved credit limit. Each credit card provider has different rules about how much they will allow you to transfer to one of their credit cards, but it’s generally up to a percentage of your approved credit limit.
For example, if you’re approved for a credit card with a credit limit of $10,000 and the lender allows you to use up to 95% of your credit limit towards a balance transfer, you can transfer up to $9,500 from your old account.
Do I have to close my account after I transfer a balance?
How long does it take?
Is there a fee for transferring a balance?
The majority of balance transfer credit cards do not charge an additional handling fee when you transfer a balance, although balance transfer fees do come into the market from time to time.
A balance transfer fee is expressed a percentage of the amount you wish to transfer. For example, transferring a $1,000 balance with a balance transfer fee of 3% leave you with fee of $30. This is charged to the credit card and can be paid in a lump sum or paid off over the length of the balance transfer promotional period.
This fee will be clearly stated in the terms of the offer and should factor in to your comparison of balance transfer credit cards.
How will my repayments be applied?
If you transfer a balance to a credit card, if possible, you should avoid any new spending on that credit card.
If you do spend on the credit card, your account will attract different rates of interest.
There’s the balance transfer promotional rate of interest (usually the lowest apr).
If you make a purchase, the purchase rate of interest will apply, and if you carry out a cash transaction (like withdrawing cash from an ATM), the cash advance rate of interest (the highest apr) will apply too.
So if you have three different rates of interest charged to the one account, and you make a repayment, which apr balance will be paid off first?
The balance attracting the highest apr will be paid off first, then the balance that attracts the next highest apr and so on. This is why it’s never a good idea to spend on a credit card after you transfer a balance, and you don’t think you can pay back the new charges right away. Any repayments will be applied to the charges that attract the highest apr of interest first, therefore reducing the amount of time the balance transfer balance has to accrue interest at the promotional rate.
How do I apply for a balance transfer?
To apply for a balance transfer, go through the process of applying a credit card. This can be done online, over the phone or in person. There’s a section in the application where you’re asked whether or not you want to transfer a balance from another account. Select, or answer, yes, and you’ll then be prompted to enter the account number, the amount you want to transfer and the name of the institution you’re transferring from. If you’re approved for the account, you’re approved for the balance transfer.
Do I get any interest free days if I transfer a balance?
You don’t get any interest free days on purchases when you carry a balance transfer balance on your credit card. If you use the card to make a purchase, interest will be charged from the day of the transaction. This is another good reason not to spend on a credit card that’s carrying a balance transfer balance.