What is a balance transfer and how does it work?
A balance transfer is a nifty credit card feature that allows you to transfer your balance from an existing card to a new card that offers a lower rate of interest for a certain period of time.
The idea is that saving money on interest could give you the chance to pay off your balance, faster.
The 0% or low interest periods on balance transfer cards vary from six months to three years, with introductory interest rates starting at 0% p.a.
For example, if you were to choose a 24 month 0% balance transfer offer, you could transfer the balance from your existing credit card to pay zero interest on that balance for two years. Any balance remaining after that introductory period would revert to the card’s purchase rate or cash advance rate.
Pros and cons of a balance transfer credit card
Balance transfer offers can give you a leg-up on your debt, but there’s a few caveats to their money-saving potential.
As a debt tool: balance transfer credit cards can give you relief from interest charges on card debt, and give you some breathing space to pay it down during the introductory period. That all depends on your strategy for knocking down the balance in time.
Compare the options on Creditcard.com.au to find the balance transfer that works best for you, then put all your energy into paying off the transferred balance.
As a credit card: most balance transfer credit cards won’t offer interest free days on your other spending. That means if you use the card to buy groceries or a coffee, you’re going to pay the card’s purchase rate on that transaction immediately.
You may want to consider having one low interest rate card for everyday spending, and one for paying down your balance on a balance transfer card. Or, close your old credit card account until you’re on top of your debt.
A balance transfer card isn’t a get-out-of-jail-free card, either. You’ll still have to pay minimums each statement period, and you’ll need a plan for paying down your debt long term.
If you have a leftover balance at the end of the introductory period, you can consider applying for another balance transfer card to give you time to pay it off – but be warned, applying for too many cards too quickly can leave a black mark on your credit score.
Balance Transfer Credit Cards - 0% and Low Rate Offers - Frequently Asked Questions
There are lots of balance transfer offers out there because providers dangle them as a carrot to entice new customers. The carrot works in your favour: the high competition means better offers and better opportunities to make a dent in your debt, if that’s your goal..
To find the best balance transfer offer, you need to know what you’re looking for and what to compare.
Balance Transfer Rate: This rate is different to the card’s purchase rate on everyday spending, or the cash advance rate that applies when you withdraw money from your credit card. The balance transfer rate is the introductory interest rate applied to the balance transferred onto the card as part of the balance transfer offer. Many cards offer 0% or a very low competitive rate. Try to choose the balance transfer offer with the lowest balance transfer rate, as this should save you the most in interest.
Length of Introductory Period: Each balance transfer offer is for a limited time, so choosing the longest possible introductory period should give you more opportunity to pay down your transferred balance. Warning: don’t get complacent with a longer introductory period! Knock out an actionable repayment plan from the start and make the most of the offer to clear your debt.
Revert Rate: At the end of the introductory period, any transferred balance left unpaid will attract the card’s revert rate. This may be the card’s purchase rate, which is usually lower, or the card’s cash advance rate, which is usually higher. If you think you may have a balance remaining at the end of the intro period, the card’s revert rate is important. The higher the rate, the more you’ll pay in interest.
Balance Transfer Fee: Some providers charge a fee to transfer your balance to the new card. This balance transfer fee is either a fixed amount, or a percentage of the transferred balance. Be sure to calculate the cost of the balance transfer fee before you apply to make sure the offer is still worthwhile.
Balance Transfer Limits: There may be a cap on the amount you can transfer to your balance transfer credit card. This is usually expressed as a percentage of your approved credit limit. So, if you’re approved for a $10,000 credit limit with a balance transfer limit of 90%, you may transfer up to $9,000 as a balance transfer.
Annual Fee: Annual fees are important because you’ll need to weigh up whether the annual fee cancels out any interest you’re saving. Compare the annual fee to other cost-saving inclusions on the card (click the card for a full review), the introductory period, and the amount you owe.
When comparing balance transfer offers, consider any fees you might have to pay. Doing this should make it easier for you to work out how much the offer could save you overall, and whether you could save more with a different card.
One of the most important fees to look out for is the balance transfer fee. Not all balance transfer cards charge balance transfer fees, so if it’s not obvious, check the fine print to make sure. A balance transfer fee may be charged as a flat rate, but it’s more commonly charged as a percentage of the transferred amount.
So, if you were to transfer $5,000 with a balance transfer fee of 2%, your fee would come to $100, and you would have a total of $5,100 to pay back overall. It’s worth mentioning the promotional rate of interest may not apply to your balance transfer fee, and it might be charged at the revert rate. Check with the card provider if you’re unsure.
The number of balances you can transfer onto a new balance transfer card varies, so it’s (always!) a good idea to read the small print before you apply. If you can’t find a conclusive answer, call the provider to check.
You may find some providers allow for the transfer of a number of balances, while other providers only allow one transfer. You may also want to check where you can transfer balances from. Providers don’t usually transfer balances from other credit cards within their network, but you should be able to transfer from other providers’ credit cards, and in some cases, from store cards, personal loans and other forms of credit.
At the time of writing, these providers allow you to transfer personal loans to a balance transfer credit card:
You may find you can’t transfer a balance from one card provider to another, especially if they’re within the same financial group.
Balance transfers credit cards for existing customers:
|American Express||No balance transfers from other American Express accounts.|
|ANZ||No balance transfers from other ANZ accounts.|
|Bank of Melbourne||No balance transfers from BankSA, St.George or Bank of Melbourne credit cards as all of these banks are under the Westpac Banking Corporation. Balance transfers from Westpac are permitted.|
|BankSA||No balance transfers from BankSA, St.George or Bank of Melbourne credit cards as all of these banks are under the Westpac Banking Corporation. Balance transfers from Westpac are permitted.|
|Bankwest||No balance transfers from other Bankwest accounts. While Bankwest is a division of CommBank, you can still request a balance transfer from a CommBank credit card to Bankwest.|
|BOQ||No balance transfers from other BOQ accounts, or from other Citi-issued credit facilities, including Citi, IMB and Suncorp Bank|
|Citi||No balance transfers from other Citi accounts or Citigroup accounts, including cards from Coles Mastercard, Suncorp Bank, IMB, Qantas Money and Virgin Money.|
|Commonwealth Bank||No balance transfers from other CommBank accounts. Balance transfers between CommBank and Bankwest are permitted.|
|Coles||No balance transfers from other Coles credit cards and other Citigroup credit cards. Can transfer personal loans, conditions apply.|
|IMB||No balance transfers from other IMB accounts or Citigroup accounts, including Citi, Suncorp Bank and Virgin Money.|
|Jetstar||No balance transfers from other accounts issued by Jetstar Mastercard, Macquarie or Card Services.|
|Latitude Financial Services||No balance transfers from other Latitude accounts or its associated entities, including Gem Visa, 28 Degrees Platinum Mastercard, GO Mastercard and Latitude Infinity.|
|Macquarie Bank||No balance transfers from other accounts issued by Macquarie Bank. This includes other Macquarie and Card Services accounts.|
|Myer||No balance transfers from Macquarie Bank or Card Services accounts.|
|NAB||No balance transfers from other NAB accounts.|
|St.George||No balance transfers from BankSA, St.George or Bank of Melbourne credit cards as all of these banks are under the Westpac Banking Corporation. Balance transfers from Westpac are permitted.|
|Suncorp Bank||No balance transfers from other Suncorp Bank accounts or Citigroup accounts, including Citi, IMB and Virgin Money.|
|Virgin Money||No balance transfers from other Virgin Money accounts or Citigroup accounts, including Citi, IMB and Suncorp Bank. Can transfer personal loans, conditions apply.|
|Westpac||No balance transfers from other Westpac accounts. Balance transfers from BankSA, St.George or Bank of Melbourne credit cards are permitted.|
|Woolworths||No balance transfers from other Woolworths credit cards, Macquarie or Card Services accounts.|
Luckily, your new provider will do most of the legwork when you request a balance transfer. However, you’ll need to take the first steps so your new credit card does the job you want it to do: help you get ahead of your debt.
1. Compare all the balance transfer cards and their offers.
Use CreditCard.com.au to compare your options, using the toggles to order them by provider, purchase rate, balance transfer revert rate, annual fee and the summary of your potential savings.
Pay close attention to the card’s balance transfer rate and revert rate, how long the introductory period lasts, and whether there’s a limit placed on the amount transferred. Be sure to take into account the card’s annual fees, and check whether there is a balance transfer fee.
If you plan on keeping the card in the long run, it’s a good idea to compare other factors, such as the card’s purchase rate, and the various features on offer.
2. Confirm the amount owing on your existing card
Before you apply, double-check the amount you want to transfer to the new balance transfer card, especially if you are transferring a number of balances from different cards or lenders. Depending on the card you choose, you may be limited in the amount you can transfer. Transfer limits are usually expressed as a percentage of your approved credit limit, for example, 80% or 90%.
3. Submit your application
When you’re ready to apply, simply click through to the card provider’s website to begin your application. Online applications usually take around 10 minutes to complete. You’ll be asked to provide details about your income, assets, debts and other relevant information.
4. Request the balance transfer
The process for requesting a balance transfer can vary. Some providers ask you to provide details of the transfer when you apply for the card, while others allow you to request the transfer after your application has been approved. For those balance transfer requests, you typically have a limited time to apply, either using a paper application or online banking.
5. Activate the card and confirm the transfer
Once you’ve been approved for your new card, you’ll need to activate it (the instructions will come with it), and then confirm the transfer has been made. After you’ve checked there are no new transactions pending on your old card, you can close that account if you don’t plan on using it anymore.
You can choose whether you keep the old card or cancel it. Remember you may have to pay an annual fee. If you think you might be tempted to spend on the old card, you may be better off closing the account to focus on paying the balance transfer debt.
Yes, you can, but you’ll likely pay interest on those purchases right away. You can spend up to your credit limit, but having a balance transfer means you won’t get any interest free days on your purchases.
Credit card interest is usually calculated daily, which means you’ll be racking up interest from the moment you make a transaction on the card. If paying down debt is your goal, you may need a low interest rate card to make everyday purchases on, or forego using a credit card until your balance is cleared.
Common Mistakes with Balance Transfer Credit Cards
Balance transfer offers can be a lifesaver, but you’ll need to be aware of some easy mistakes to make after you’ve completed the transfer.
Mistake #1. Thinking that 0% interest means no payments
Even with a 0% p.a. balance transfer offer, you’ll need to make minimum repayments on the card each statement period. If you want to pay off your transferred balance within the introductory period, it’s a good idea to set up a repayment plan, where you pay off as much as you can afford each month.
Mistake #2. Only paying minimum repayments
Making only the minimum repayments on any credit card isn’t a recommended practice because it will massively bump up the amount you owe long term. Check your credit card statement - it tells you how long it’ll take to pay off your debt making only the minimum repayments. By only paying the minimum, you’ll stay in debt far longer and pay a lot more in interest, even with a balance transfer offer.
Mistake #3. Making new purchases on your card
This applies to both your new card and your old card. When you have a balance transfer offer, you should focus on paying your transferred balance off within the introductory period. If you start spending on either card, you have even more to pay off month-to-month.
Worse still, any repayments on your new card automatically go towards paying off the balance with the highest interest first. That means if you’re spending on your balance transfer card, any payments you make might be paying off your new balance while the transferred balance remains untouched.
Note: even if the credit card says it offers interest free days, those won’t apply if you have a balance transfer. When you’ve paid the balance transfer, your interest free days will kick in.
Mistake #4. Not cancelling your old card
When you transfer a balance from an old card, it can be tempting to spend. After all, now you’ve got a credit card with $0 balance and a full credit limit available to you. If you’re going to be tempted to spend, consider closing your old card, and focusing on paying down your balance transfer.
If you’re struggling to pay down existing debt, a balance transfer can help you save money on your interest repayments. It's important to look at your repayments each month and work out what you can afford to pay down on your debt to find a balance transfer credit card that works for you and your circumstances.
Used well, a balance transfer offer can help you get on top of money you owe on your credit card.
Applying for a balance transfer credit card won’t affect your score any more than a regular application. It’ll show up as a standard hard enquiry on your credit file, and may lower your score as is normal for loan and credit card applications.
Each credit card application puts a hard enquiry on your credit file, so doing too many in a short period of time is detrimental. If you haven't paid off your balance at the end of the period, you can consider doing another balance transfer. As long as you meet the application requirements and can make the repayments, it's a good time to start comparing.