What is a balance transfer credit card?
A balance transfer card allows you to transfer your existing balance to a new credit card with a lower interest rate. The interest rate is fixed for a specified time at an ‘introductory offer’. These balance transfer offers could include features like a 0% balance transfer rate.
Doing a credit card balance transfer can make it easier to manage your finances and help you to pay off your debt faster. If you have a good credit rating and are looking to pay off the debt on your credit card or even repair your credit rating, you could consider a balance transfer card.
All that being said, this card is also a good option for those who just want a low-interest card.
How do balance transfers work?
Balance transfer cards will typically offer low-interest rates for an introductory period – generally between six months to two years. After this period, the interest rate typically reverts to a higher one, so you should try to pay off your debt before this date comes.
Some credit card balance transfers may also have a limit. For example, some providers may only allow you to transfer 70% of your balance to their card, or up to a percentage of your new limit. If that’s the case, and you have a residual balance on your old card, you’ll still need to make payments on that remaining balance.
How to do a balance transfer
You can do a credit balance transfer in just a few simple steps:
- Check your balance. Find out exactly how much you still owe, as well as your interest rate and annual fees. You’ll need this information when you apply for your new card. You should also check if there are any changes that apply to balance transfers.
- Compare balance transfer cards. A great way to shop around for your next credit card is by comparing your options. You can use our simple credit card comparison service to do this!
- Apply for your new balance transfer card. Once you’ve found a card that’s right for you, you can begin your application. While this process may differ between providers. you’ll need to provide proof that you meet the eligibility requirements (e.g. identification to prove you’re 18 years or older) and the details of your balance transfer (such as your current balance and account number).
- Close your previous account. Once your balance transfer is completed (which may take up to two weeks), you should contact your old provider and close your credit account. You don’t want to be hit with fees for an account you’re no longer using!
How can I get the most out of my balance transfer?
The fixed period offered on a credit card balance transfer can vary. When you’re looking at your options, it’s important to be reasonable with your repayments − especially when you’re paying off existing debt.
To get the most from this product, ask yourself these questions:
- How long will it take to pay off my card?Can I do so over a short timeframe? If not, look for cards with a longer introductory balance transfer offer to allow yourself more time to pay off the debt.
- What’s the revert rate of this card?After the introductory period of your balance transfer, the interest charged on any balance left over will usually revert to a higher rate (e.g. the purchase or cash rate). Ideally, you’d pay off your balance during this introductory period to avoid interest payments outweighing any savings you make.
What mistakes should I avoid with balance transfer cards?
Mistakes can be made with your balance transfer card that could hinder your chances of either saving money or paying off your card. The more common ones include:
- continuing to transfer to other cards to avoid the revert rate. Every credit-related application you make is recorded and added to your file. Creditors monitor your movements and may note you as a bad investment if you’re avoiding debt repayments by continuously moving your debt to new cards. This could put you in a sticky situation in the future if you’re ever in need of credit;
- continuing to spend big on your card. Balance transfer credit cards are a way to reduce debt, so keeping up your spending habits is just increasing the balance you’re trying to pay off;
- failing to understand your card’s terms and condition. For example, a 0% balance transfer rate is extremely appealing. However, there may be annual or other fees you haven’t taken into consideration; and
- forgetting to note when your introductory offer ends. Time can pass quickly, and the date when your introductory period ends can slip through the cracks. Make sure you put your end date in your calendar and include reminders up until the date so you can prepare.
How do I choose the best balance transfer credit card in Australia?
There’s no one ‘best’ balance transfer card; the best card for you will be different from someone else’s. When searching for a balance transfer credit card, you might want to consider:
- interest rates. Does the card offer a low-interest or interest-free balance transfer? Decide which option suits you. Be sure to check what the card’s revert interest rate is as well, as this is the rate you’ll pay when the introductory period is over;
- What kind of fees does the card have? Are there annual or transfer fees? Some cards may even offer zero balance transfer fees. Also, check what charges may apply to late payments; and
- the introductory period. How long is the introductory period, and will it be enough time for you to get on top of your debt? Our credit card payment calculator could help you work this out.
If you’re not quite sure how to weigh up all these aspects, you can compare balance transfer credit cards.
Our credit card comparison service is a simple way to do this. You just need to enter in a couple of details to view the range of credit cards we have on offer. If you find one you like, you can apply for it through us!