Credit card balance transfers
Making a balance transfer work for you
If your credit card debt is getting out of hand, a balance
transfer deal could be a good way to clear your debt and get your
finances under control. But, with one in three Australians actually
increasing their debts with a balance transfer, you need to pay it
off within the promotional period, or you could end up losing even
more money and increasing your financial stress.
Our tips will help you take advantage of balance transfer deals
so you can avoid the debt trap.
What is a credit card balance
A balance transfer is a way of moving some or all of your credit
card balance from one card to another. The debt you move to the new
card attracts a lower interest rate (or even no interest) for a
certain period (called the promotional or honeymoon period).
At the end of the promotional period, any transferred debt you
haven't repaid will attract higher interest.
Read ASIC's media
release about our review of credit card lending in Australia,
to find out why balance transfers can be a debt trap and how card
providers can help people better manage credit debt.
Three steps to winning on a
balance transfer deal
Here are the three simple steps to use a balance transfer to get
your debts under control.
Step 1: Cancel your old credit card
The best way to avoid temptation and going further into debt is
to cancel your old credit card as soon as the balance is
transferred. The sooner you cancel your old card, the more likely
you'll avoid the debt trap.
For more information, visit our webpage on how
to cancel a credit card.
Step 2: Set up a repayment plan
You'll only get the full benefit of a balance transfer deal if
you pay off the amount you've transferred within the low interest
period. If you don't, there's real danger you'll get further into
debt, as you could be paying higher interest than you were on your
Work out the repayments you need to clear your debt before the
promotional period ends.
Credit card calculator
Step 3: Don't use your new card until the balance transfer is
Pay off the transferred balance before you make any purchases
with the new card. Remember, the promotional low interest rate only
applies to the balance you've transferred from your old card; any
new charges will usually attract a higher interest rate.
Set up your repayments as automatic transfers from your
bank account to your credit card each payday until the promotional
Remember that payments you make to reduce your balance are
usually applied to the highest-cost debt 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 will only add to your credit card debt.
Avoid the temptation to spend on your new card by leaving it in
a drawer at home, rather than in your wallet. You won't be able to
use the card if you don't have it with you.
Things to know before you get
a balance transfer
If you research your options and plan ahead, a balance transfer
deal can be a good way to get on top of your debts. But there's
more to a balance transfer than just a temporary low interest rate,
so be sure to weigh up all the features before you move your
Read the fine print of the terms and conditions to make sure you
understand the following features:
- Balance transfer start date - For example,
does it start from the date you apply for the transfer, the date
the card is approved or the date the transfer occurs?
- Fees and charges - Make sure the savings
you can make with the lower interest rate won't be wiped out by
other charges. Consider things like: account-keeping fees, fees for
schemes, late payment fees, international transaction fees, and cash
advance fees. Some credit card providers also charge a 'balance
transfer handling fee' when the new card is set up.
- Interest rate on new purchases - Items you buy
with your new card will usually attract the standard interest rate
of the new card (not the promotional interest rate). Check the
card's terms and conditions to see which rate applies.
- Conditions on 'interest-free days' - Some
credit cards give you a certain number of interest-free days in
which to make repayments after you make a purchase. But, 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 a new purchase. Check whether
you'll get an interest-free period while you have an outstanding
- Promotional period end date - Most promotional
periods on balance transfers are for between 6 and 18 months. Find
out when your promotional period will end, so you can set up a plan
to pay off the debt before then.
- Standard interest rate after the honeymoon
period - Credit card transfer deals usually revert to a
high interest rate at the end of the promotional period. Check the
new card's terms and conditions for information about the interest
rate that applies once the offer expires.
Deal with long-term debt
If you're 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.
Weigh up all the costs and features of a balance
transfer before you sign up. Avoid losing control of your debts by
committing to pay the transfer amount off before the promotional
Last updated: 04 Jul 2018