Balance transfer credit cards

The balance transfer interest rate is the introductory rate charged on your balance when you transfer it to a new credit card. This rate typically lasts between 6–24 months but can last longer in some cases. So, for example, with a 12-month 0% balance transfer, you would pay 0% interest on your existing credit card debt that’s transferred to the card for 12 months.

In addition to generally having a low or 0% interest rate for a period of time, a balance transfer can also be a good way to consolidate credit card debt. By paying a one-off balance transfer fee, you could move your existing credit card debt from multiple cards onto one. Check how much you can transfer, as some credit cards will only allow you to transfer a certain amount of money and you may not be able to transfer the full amount from your existing cards. Some providers may also place a limit on how many cards you can transfer debt from.

You should also be aware of the revert rate—the interest rate your card will revert to once the introductory period finishes. You may also be charged interest on any new purchases you make on the card, even during the introductory period.

If you don’t pay off your transferred debt by the end of the introductory period, then what’s left will be charged interest at the higher revert rate. If you don’t think you can pay it all off in time, consider picking a card with a lower revert rate, or think about whether you may want to choose a card with a low ongoing interest rate, instead of one suited to balance transfers.

You could also consider a debt consolidation loan, which allows you to bundle your debt together into one personal loan. These loans may have lower interest rates and longer terms than credit cards, but will come with a fixed payment schedule and won’t allow you to continue to borrow money.

Pros

• The ability to transfer your debt to a card with low or no interest rates during the promotional period
• Potential to pay off your credit card balance faster, especially if you’re not paying any interest
• A timeframe in which to work towards paying off your debt
• Potential for a credit card with a more favourable purchase rate than your current one, even after the promotional rates end

Cons

• The initial balance transfer fee could cancel out some of your potential interest savings
• New purchases will typically be charged a different, higher rate of interest and may not be subject to any interest-free days
• If you’re unable to pay off your transferred balance by the time the promotional interest rate period ends, you may face higher revert interest rates

Balance transfers usually come with limits, which means you may not be able to transfer your entire balance to the new card. In these circumstances, a debt consolidation loan may be worth considering.

A credit card with a 0% introductory interest rate may not necessarily provide better value than a credit card which charges interest immediately. For example, a credit card that comes with an interest-free period but a high annual fee could actually end up being more expensive over the long-term than a credit card with no interest-free period but no annual fee.

If possible, it could be worth considering a card which combines a 0% balance transfer interest rate, no upfront or annual fees, and a competitive revert rate.

When taking out a balance transfer credit card, it’s a good idea to focus primarily on paying off as much of your debt as possible before making any new purchases with your card. You may even want to consider paying off and cancelling your previous credit cards if possible, to reduce the temptation to spend and help you repay your existing debt faster.

Failing to repay your debts in time on a balance transfer credit card could keep you in a cycle of debt, so make sure you compare your options thoroughly before deciding. You may want to seek advice from a qualified financial adviser to help with your decision making.

If you’re having trouble making credit card repayments, you may also want to contact your card provider and speak to them about applying for financial hardship. Free, confidential, independent financial counselling is also available from the National Debt Helpline (NDH) on 1800 007 007. Free debt advice and debt negotiation are available from the NDH if you need it.

Canstar compares balance transfer credit cards using a unique, sophisticated methodology that considers both price and features. We compare products from across the industry, assigning our 5-Star Rating to products offering outstanding value to consumers.

Some of the features Canstar compares and you should consider are:

• Does the card offer an interest free or low interest rate deal?
• Does the card charge an annual fee? Credit cards with a longer interest-free timeframe may charge a higher annual fee, so be wary of overall costs when choosing a balance transfer.
• How long is the transfer period?
• What is the balance transfer revert rate? This is the interest rate that the card switches to after the introductory low-rate period ends.
• What is the balance transfer fee?

You can compare balance transfer cards from our Online Partners by using the comparison table at the top of the page. You can also change the filters to suit your own financial and personal requirements.

Purchases on a balance transfer credit card work much the same as a regular credit card. These purchases, however, will usually be exempt from the promotional interest rate and instead be charged interest at the card’s revert rate, which is likely a lot higher. They may also be exempt from any interest-free days the card offers, until the transferred balance is paid off. New purchases may also be subject to other credit card fees such as cash advance and foreign transaction fees.

If you’ve committed to a balance transfer credit card, here are a few things that may help you repay your debt faster:

• Cancel your old card/s as soon as possible. This could help you avoid the temptation to spend more on credit
• Pay more than the minimum repayment amount
• Avoid making any new purchases with your balance transfer credit card

Create a budget, which can arguably be one of the best ways to keep a hold on your spending. There’s plenty of budgeting apps or websites that could assist you, or you could opt for an old fashioned Excel spreadsheet with a list of all your expenses (either broken down monthly or weekly).

There may be restrictions that apply to which credit cards you can transfer an existing balance to, including those from your current provider. It’s worth talking to your current provider first to let them know that you’re thinking of applying for a balance transfer credit card. Even if their offerings aren’t as competitive as others on the market, they may match an offer to keep you as a customer. Since they’ve already approved you for a credit card in the past, they probably have a good idea of your financial situation, which may make the application process a bit quicker than if you were to move to a new provider.

That being said, you may find that you’re unable to do a balance transfer from your current card to another offered by your current provider or from a provider within the same financial group (e.g. Commbank also owns Bankwest). In this instance, it’s worth comparing your options and potentially moving elsewhere.

A credit card balance transfer can affect your credit score in the short term, as applying for a credit card will be recorded on your credit history. Making multiple applications in a short period of time can negatively affect your score, as lenders may see this as you being desperate for credit. This is why taking your time and assessing your options before applying can be important.

If a balance transfer credit card helps you make your repayments on time and lower your debt faster, this may actually help to improve your credit score. Closing old credit cards can also help, as lenders see your credit limits as potential debt, so closing a card that you no longer use removes this potential for debt. By having less cards to worry about, you could also increase your chances of making credit card repayments on time.

You can check your credit score for free with Canstar or via the Canstar App.

While it may be possible to do so, taking out additional balance transfer credit cards may only keep you in a cycle of repaying debt. Making new applications for credit may also damage your credit score, especially if you make several in a short period of time.

If you’re finding it difficult to repay your debt, then it may be wise to chat through your options with a financial counsellor. The National Debt Helpline (NDH) can put you in touch with a counsellor free of charge. These financial counsellors can provide confidential, independent financial advice. You can call the NDH on 1800 007 007 or visit its website.

Please note that these are a general explanation of the meaning of terms used in relation to balance transfers. Your bank or financial institution may use different terms, and you should read the terms and conditions of your balance transfer credit card carefully to understand all fees, charges and interest rates that may apply. Refer to the Product Disclosure Statement (PDS) of any product you’re considering.

Account-keeping or ongoing fee: A monthly account-keeping fee that’s charged by the lender to help cover the administration cost of maintaining the line of credit. Alternatively, you may be charged an annual fee.

Average daily balance: The balance of your card is determined by adding up all balances during the month and then dividing the total sum by the number of days in a given billing cycle. Most credit card providers calculate the daily balance based on the annual rate.

Balance transfer fee: A fee charged when you make a balance transfer. It may be a flat fee or a percentage of the amount you transfer.

Bankruptcy: This is when someone’s debt problems become so serious that they’re unable to pay their existing debts and bills. When this happens, they can apply to a court to be declared bankrupt, and any assets or savings they have can be used to pay off their debts.

Credit limit: The maximum amount you can spend with your credit card before having to pay off some of the balance. Learn about how credit limits are determined here.

Credit report or history: A report from a credit agency that contains a history of your previous loan and bill payments and applications. Banks, lenders, creditors and financial institutions use this report to determine how likely you are to repay a future debt, and it helps them decide whether or not to lend you money. Your credit rating and credit report may also be used by lenders to set your loan interest rates.

Credit rating: Also known as your credit score. It’s a numerical score that represents an assessment of your credit-worthiness, based on your positive and negative borrowing and repayment history. Your credit rating is used by lenders when deciding whether or not to lend to you and may help them determine what interest rates to charge on your loan.

Default: When a cardholder fails to fulfil their obligation to make the minimum necessary payment on their credit card bill or other loan. Defaults are a serious black mark on your credit report and negatively affect your rating.

Interest rate: The rate at which your outstanding balance increases per month if your bill is not paid or not paid in full.

Interest-free days: The number of days you have to pay your bill in full before interest is charged on the balance. It’s the period of time between the date of a purchase and when the payment is due. This period usually does not apply to cash advances.

Introductory rate: A promotional interest rate charged when you first sign up for a credit card that’s offered to entice new customers. These rates are usually very low, but revert to the standard rates after six months or so.

Minimum interest charge: The minimum amount of interest you would be charged if you’re charged any interest. For example, if your total interest charge is $0.75 but the bank’s minimum interest charge is $1, you will be charged $1.

Minimum payment: The number listed on your bill as the minimum amount your lender requires you to pay off your credit card for that month.

Penalty fees: Fees charged if you violate the terms of your cardholder agreement or other requirements related to your account. For example, your credit card provider may charge a penalty fee if you make a late payment or if you exceed your credit limit.

Universal default: When one financial institution treats a borrower as if they had defaulted when the borrower defaults with a different institution.