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Smart Money

6 Things you need to know about balance transfers

Last updated

Balance transfer offers provide a low promotional interest rate that can save you money and make it easier to pay your existing debts. They also come with a lot of rules and possible pitfalls that can lead to more debt if you’re not careful.

By learning about the following balance transfer facts, you will be able to make better use of this feature if and when you need it.

Quick Balance Transfer Facts

The amount of debt that you can transfer to a new card is based on your approved credit limit.

Depending on the credit provider, you could be able to transfer between 70% to 100% of your new credit limit.

In some cases you may only be approved for some of your requested balance transfer.

If you’re not happy with the limit you have been assigned, you can cancel the card or try to renegotiate the limit to suit your balance transfer.

Transferring one balance to a new card

Below are the steps it takes to transfer debt from an existing credit card (or other eligible loan) to a new credit card with a balance transfer offer:

Find a credit card with a balance transfer that is suitable.

Apply for the credit card

During the application process, apply for the debt from your existing card to be transferred to the new card. You will need to include:

– The amount of debt you want to transfer.
– The account name and number.
– The account expiry date.
– The issuer details.

When the application is approved, check to see how much of the balance transfer has been approved. Negotiate or cancel the card if the balance transfer isn’t appropriate, otherwise:
Wait to receive the card and activate it. Your new credit card provider then starts the balance transfer process.
Continue to make any required payments on your old card until the balance is transferred to your new card.
When the balance is moved to your new card, you can start making payments to reduce your debt. It’s also a good time to decide whether or not to cancel the old card.

Balance transfers for multiple debts

Most providers let you transfer between 1-3 existing debts onto a credit card with a balance transfer offer. The types of debts you are allowed to transfer vary between providers, so make sure you check before submitting an application.

When you transfer multiple debts to a balance transfer credit card, you follow the same steps outlined above, but enter the details of all the accounts and debts when you get to Step 3.

REMEMBER: You can only transfer debts that are in your name. It could also take longer for all the debts to be transferred to the balance transfer card.

Making payments during the introductory period

The balance transfer interest rate is at its lowest during the introductory period, which means you should always aim to pay off your debt within this time. You can find a balance transfer offer that will help you achieve this goal by considering the following:

The total amount of debt you want to transfer
Any other charges, such as an annual fee or balance transfer fee
The length of the introductory period
Once you have these figures, divide the debt by the length of the introductory period to get a payment amount that fits.

Dealing with debt after the introductory period

At the end of the introductory period, the balance transfer interest rate reverts to a much higher standard rate. If you still have debt on the card at this time, it is critical you pay it off as quickly as possible.

Be prepared to make sacrifices. This could mean you stop drinking all those beers, say no to a beautiful dress, or wave goodbye to your holiday – whatever it takes to pay off the balance as quickly as possible.

You could also decide to apply for another balance transfer credit card to pay off the remaining debt. If you take this path, remember that you will need to go through the whole application process again, and might not be as easily approved for a new card.

INSIGHT: A recent Senate inquiry found that 30% of all people who get balance transfers are still struggling with debt when the introductory period ends.

Cancelling old cards when you get a balance transfer

If you want to cancel your old card after moving debt to a new card, the balance will have to be $0. Wait until your new issuer has completed the balance transfer, then contact the issuer of your old card and put in a request to cancel the account.

Make sure you get a reference or written confirmation of the cancellation, cancel any direct debits linked to the account and factor in any fees that may be charged for closing the account.

Pauline

Pauline Hatch

Pauline is a personal finance expert at CreditCard.com.au, with 8 years in money, budgeting and property reporting under her belt. Pauline is passionate about seeing Aussies win by making their money – and their credit cards – work smarter, harder and bigger.

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