Credit card balance transfers
Making a balance transfer work for you
Balance transfer offers are used by credit card providers to
attract new customers. They can save you money and help you pay
your debt off sooner, but if you're not careful they can also
increase your debts and create more financial stress. Here's what
you need to check before you switch cards.
Drawbacks of credit card
When you're considering a balance transfer deal, it can be easy
to focus on the low, or zero, interest rate being offered and
forget to compare the other features of the card. Here are some of
the tricks and traps.
Higher fees and charges
It's important to check all fees, charges and interest on the
new credit card. Compare them with the features of your current
card to see if you'll benefit in the long run. If the new card has
high fees this could quickly wipe out any savings you'll get from
Fees and charges can include:
- Annual account keeping fees
- Fees for reward programs
- Late payment fees
- Fees for exceeding your credit limit (a card issuer must get
your consent before they charge you for this)
- International transaction fees
- Cash advance fees (charged in addition to interest on cash
Balance transfer fees
Some credit card providers charge a 'balance transfer handling
fee' when the new card is set up. This is often a percentage of the
amount you are transferring and is usually added to the balance on
the new card.
Make sure you take this fee into account when you're working out
your repayments as well as how much the transfer deal will really
If you transfer your balance to a new card, consider
deactivating the card and just pay off the balance so you're not
tempted to use it to rack up more debt.
High interest rate after the honeymoon period ends
Credit card transfer deals usually revert to a high interest
rate at the end of the honeymoon period. Sometimes the cash
advance rate, which can be higher than 20%, will be applied to any
If you haven't paid off the full amount when the transfer period
ends there's real danger you'll get further into debt as you are
likely to be paying higher interest than you were on your old
Check the new card's terms and conditions for information about
the interest rate that applies once the offer expires.
New purchases may be at the higher rate
If you use your new card to buy things, these purchases usually
attract the standard interest rate of the new card (not the credit
card transfer rate).
Payments you make to reduce your balance are usually applied
against the balance with the highest interest rate first. This
means you'll be paying off the new purchases before the balance
transfer amount. If this is the case, you may never get the full
benefit of the transfer and you may be adding to your credit card
Check the card's terms and conditions to see which rate
Interest-free days may not apply to new purchases
Credit cards often give you a certain number of interest-free
days in which to make payments on your card after you make a
purchase. However, if you have a balance transfer amount owing on
your card, the interest-free period may not apply. This means you
will be charged interest from the date you make any new
Read the terms and conditions of the card carefully to see
whether you will get an interest-free period while you have an
outstanding balance transfer.
Higher credit card limits
When you apply for a new credit card, you may be given a credit
limit that is not what you requested or more than you expected. If
you think you'll be tempted by a large credit limit, or you simply
have no need for one, contact your credit provider and ask them to
reduce the limit.
Benefits of credit card
If you research your options and plan ahead, a balance transfer
deal can be a good way for you to get on top of your debts. You may
also benefit from the special features that come with some
Work out your repayments
You will only get the full benefit of a balance transfer deal if
you pay off the amount you've transferred within the nominated low
Before you sign up for a transfer offer find out whether you'll
be able to pay off the balance in time.
Credit card calculator
Check the relevant dates
Find out when the balance transfer period starts. For example,
is it from the date of your application, the date the card is
approved or the date the transfer occurs? Being aware of these
details will help you take full advantage of the transfer offer and
manage your account better.
Cash back, discounts and reward schemes
Some credit cards come with special features such as reward
schemes, cashback offers or discounts. You may benefit from these
features but they should never be the main reason you take up an
If you decide to transfer your balance, close your old credit
card account. This will ensure you don't keep spending on the old
If you do get a card that comes with special features, make sure
you're not paying for something that you will never use.
Discounts on goods and services
Some credit card providers offer discounts on goods and services
purchased through their own or partner organisations. This can be a
great way to save money on items you are likely to purchase, but
make sure the savings are not offset by extra fees or a higher
'Cash back' credit cards give you back some credit on your
account - usually a percentage earned on certain purchases. In many
cases 'cash back' cards come with high interest rates, so they are
only suitable if you pay off your balance in full each month.
Make sure you understand which purchases are included and how
the cash back deal is applied to your account.
Some cards offer points for every dollar you spend on the card,
but this can come at a cost. See reward schemes for more information.
Credit card travel insurance
Some credit cards offer free travel insurance. If this is
something you think you will use, make sure you read the terms and
conditions to see if the card is a good fit for what you'll need.
Find out more about credit card travel
Finding a longer term
If you are considering a balance transfer because you're
struggling with credit card repayments, talk with your credit card
provider first to see if you can work out a more affordable
repayment plan. See trouble with debt for information on
how to do this.
Get free financial counselling
You can also speak to a free financial counsellor to make a plan
to pay off your credit card debt. Find out how a financial
counsellor can help you.
Don't rush into a credit card transfer
deal. Weigh up the costs, savings, features you gain and features
you lose before you make a decision. And get help with debts if
that's what you really need.
Last updated: 29 Mar 2018