0% Purchase Offers
Purchase offers are designed to help you save on interest as you use your card day-to-day. So, how do they work?
What is it? A 0% purchase offer is a type of introductory offer that allows new cardholders to pay nothing in interest on their purchases over the card’s introductory period (this will vary according to the type of card and the card provider).
Step 1. Compare
Check out the offers available, and choose one that gives you the time you need to pay off your expected spend. Take into account other features on the card, such as the annual fee, making sure it will work well in the long term if you plan on keeping the card after the offer ends.
Step 2. Approval
Once you apply and are approved for a card with a 0% purchase offer, you will receive your card in the post within a week or so. After activating your card, you’re ready to spend.
Step 3. Make a Plan
If you have a big purchase in mind, say home renovations or a holiday, work out how much you think you will spend before you start using your card. This should be an affordable amount you know you can pay back within the intro period. If you’re not planning a big purchase, instead think about how much you can afford to spend month-to-month, while still staying on budget for repaying that overall amount before the intro period ends.
Step 4. Work Out Your Repayments
Once you know how much you are likely to spend on your card, create a repayment plan that allows you to pay it all back within the intro period. It can help to set up automatic payments so you don’t forget.
Step 5. Keep Track
Over the intro period, keep track of your spending. If you find yourself going over your expected budget, adjust your repayments to ensure you still manage to pay off your spending within the intro period.
What happens next? At the end of the card’s introductory period, any balance remaining will usually revert to the card’s purchase rate.
0% Balance Transfer Offers
Balance transfer offers are designed to help you save on interest, helping you pay down your existing credit card debt faster. How do they work?
What is it? A 0% balance transfer offer is a type of introductory offer that allows you to transfer the balance from your existing credit cards, store cards, and in some cases, personal loans, to pay nothing in interest on that balance throughout the card’s introductory period.
Step 1. Compare
As you compare 0% balance transfer offers, try to find one that gives you sufficient time to pay down your transferred balance within the introductory period. Consider the card’s annual fee and features. Think about whether a basic option would better allow you to focus on paying down your transferred balance.
Step 2. Approval
After you have been approved, you will receive your card in the post. Some cardholders who want to focus solely on paying down their transferred balance choose not to activate their card, as this discourages them from spending on it.
Step 3. Make a Plan
Create a repayment plan that allows you to pay off your total balance within the intro period. An easy way to do this is to divide your total balance by the number of months in the intro period. Setting up automatic repayments can then take the hassle out of remembering to make your payment each month.
What happens next? At the end of the introductory period, any transferred balance that remains unpaid will revert to the card’s purchase rate or cash advance rate (as determined by the card provider).
Case StudyJessica has a balance of $8,000 on her current credit card. While it has no annual fee, the balance is attracting a high rate of 20% p.a. Wanting to pay down her debt, Jessica chooses to transfer her balance onto a new card with a 0% p.a. balance transfer deal offered over 12 months. Creating a repayment plan to pay back $670 each month, Jessica clears her debt within the card’s 12 month introductory period to enjoy a potential saving of around $1,500 in interest. |
To spend or not to spend? When you’re paying off a balance transfer, adding new spending into the mix isn’t always a good idea. Not only will it add to the total amount you need to pay off, making it harder to clear your transferred balance, it can also add unnecessary interest charges.
On a standard card with a balance transfer, any new spending will start attracting interest from the day it’s made. This obviously adds to the burden of paying off that new spending and the transferred balance. However, when combined with a 0% purchase offer, interest on new spending is taken out of the equation.
Using Two Offers At Once
When you apply for a card with both a purchase offer and a balance transfer offer, it’s entirely up to you whether you use both offers or just one of them. For example, you may choose to apply for a card because you like the look of its purchase offer and its features, but you don’t have an existing credit card balance so the balance transfer offer is of no great matter.
On the other hand, you may find yourself in need of both offers. So, how do you make that work?
Using both a 0% purchase offer and a 0% balance transfer offer, you can transfer a balance onto the card, and then use the card to make purchases, with both balances attracting zero interest throughout the introductory period. But, just as we outlined in the steps above, you need to be smart about the way you use these offers together if you want to make them work for you.
First of all, know how much you can afford to spend on the card – and stick to it. Create a repayment plan that allows you to clear this balance within the intro period, while also paying down your transferred balance to zero. Don’t leave it all to the last month to pay it all off or you may end up with a big lump sum you can’t afford to pay off.
0% Purchases & Balance Transfers Credit Cards - Frequently Asked Questions
When you apply for a card with a balance transfer offer, the card provider will provide the info you need regarding how and when to complete the balance transfer. You may be required to provide the details of the transfer during the application process, or afterwards once your card account has been set up. The info you will need to provide will usually include your current provider, your card number, and the balance you want to transfer.
Once your new card provider has approved your application, it will arrange the transfer. It is then up to you to close the old card account. Tip: Closing this old account can remove the temptation to spend.
At the end of your card’s intro period, any transferred balance remaining will start attracting interest at the card’s revert rate. This will either be the card’s standard purchase rate or cash advance rate, depending on the card provider.
If you are left with a large lump sum at the end of the intro period, it will start accruing interest pretty quickly, regardless of whether it attracts the card’s purchase rate or cash advance rate. While it may be an option to utilise another balance transfer offer (depending on your situation), it’s best to avoid this if you can.
How much you are able to transfer onto a balance transfer card will depend on your chosen card and your credit. When you apply for a credit card, your card provider will assign you a credit limit according to your income, your credit history and various other factors.
While some card providers allow you to transfer sums up to your credit limit, other provider limit the amount as a percentage of your approved credit limit. For example, some card providers may only allow for transfers up to 80% or 90% of a cardholder’s credit limit. This gives the cardholder some wiggle room for new spending, or interest to accrue, should the balance remain unpaid at the end of the intro period.
As you check the small print on your balance transfer offer, you may notice a list of card providers you are not allowed to transfer a balance from. These will usually be card providers within the same group as your new card provider.
As an example, you may not be allowed to transfer a balance from a Westpac card onto a card within the Westpac Group, such as Bank of Melbourne. However, as each card is different, it’s a good idea to read the small print as you compare your options so you know where you stand.
It’s also worth bearing in mind that balance transfers don’t just have to come from other credit cards. Some card providers allow balances to be transferred from store cards, personal loans, and other forms of credit. If you choose this option, weigh up the long-term costs carefully and make sure you can pay off your expected transferred balance before applying.
