Will 0% balance transfer credit cards disappear?
We're starting to see evidence that this handy credit card option may become rarer.
A 0% balance transfer lets you transfer your existing credit card debt to a new card and pay 0% interest on that balance for a fixed period of time. It can be a very useful technique for paying off debt, provided you're disciplined about actually making payments to reduce the debt before the offer expires.
There are plenty of 0% balance transfer offers in the Australian market right now, but that hasn't always been the case. Five years ago, balance transfer offers usually featured a low interest rate, but it wasn't 0%, especially if you wanted a deal that ran for 12 months or more. Increased competition means that 0% deals are now the standard, but there are some small signs that this might change again in the near future.
The first is that we're increasingly seeing cards with a 0% offer but which charge a one-time balance transfer fee. This varies, but typically ranges between 1% and 3%. If you transfer $10,000 of debt on a 3% offer, you'll be charged $300. The odds are that's much cheaper than the existing interest on that debt. But it's not quite as cheap as a 0% deal which doesn't have any balance transfer fee in the first place.
We're also seeing changes in neighbouring markets. In its annual results out today, ANZ notes that it has stopped offering 0% balance transfers in New Zealand. There's no evidence of that happening in Australia right now, but it's a sensible reminder that banks will stop offering these cards if they don't see them as profitable.
If you're paying off credit card debt, the interest rate should be your number one consideration (which seems obvious, but many Australians worry more about the annual fee for their credit card. The faster you can pay off that debt, the better your financial position, and a 0% balance transfer remains the easiest way to do that. Just don't assume that you'll still have that option two years down the line.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.