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 transfers

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 the transfer.

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 advances).

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 cost you.

Smart tip

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 outstanding balance.

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 card.

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 debt.

Check the card's terms and conditions to see which rate applies.

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 purchase.

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 transfers

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 cards.

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 interest period.

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 offer.

Smart tip

If you decide to transfer your balance, close your old credit card account. This will ensure you don't keep spending on the old card.

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 interest rate.

Cashback deals

'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.

Reward schemes

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 insurance.

Finding a longer term debt solution

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.

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Last updated: 29 Mar 2018