Have you ever considered doing a balance transfer on your credit card to access a lower interest rate? It’s a popular thing to do – after all, according to the Reserve Bank Aussies currently owe around $32.1 billion on credit cards that is accruing interest. And this is how much it could be costing you!
Financial institutions know that balance transfers are popular (plus being an easy way to attract new customers) and Canstar recently found 126 credit cards with a balance transfer offer. This included 23 credit cards currently offering long-term 0% balance transfer deals, along with the top 10 as of June 2016.
So what’s not to love about it? Well, like most good things, that low rate doesn’t last forever – enter the revert rate.
What is a credit card revert rate?
The credit card revert rate is the interest rate that your new credit card will revert to once the introductory rate or honeymoon period is finished. The revert rate is the interest rate that will be charged on any remaining debt that you have not yet managed to pay off during the interest free (or low interest) period, and any additional purchases you make. The revert rate is usually much higher than the introductory rate.
Canstar has found that currently, on average, credit card revert rates have been as much as 18.97% p.a.. That’s pretty high!
Averages can mask big differences, though. Out of the 0% balance transfer deals currently available on our database as of October 2016, the lowest revert rate is 8.99% p.a. and the highest is 20.99% p.a..
Why is the revert rate so important?
Because if you don’t pay off your debt in full within the balance transfer or introductory rate timeframe, you’ll be paying the revert rate in interest – and it will not be cheap.
The idea is to pay off your debt in full within a required timeframe, right? Of course, plans don’t always work out, for one reason or another. So it always pays to be aware of what rate of interest your chosen credit card reverts to once the promotional period is over. Otherwise you may find yourself accruing a bit more debt than you would have liked.
The revert rate is useful in that it can give you the motivation to ensure you pay off that old debt within the honeymoon period.