Balance Transfer Credit Cards



What is a balance transfer credit card?


A balance transfer credit card refers to a new credit card which allows the cardholder to transfer their owing balance from an existing credit card. Cardholders will apply for a credit card balance transfer to save money through a ‘balance transfer period’ on the new credit card, which will be promoted with a low, introductory interest rate - the best deals are 0% interest.


The length of introductory periods can vary between six months and two years, while introductory interest rates will begin at 0% interest. At the end of the introductory period, any remaining balance which is unpaid on the new credit card will have the standard credit card interest rate applied.


What are the benefits?


Choosing the right card offer can provide great benefits:

  • If you can repay the existing amount within the balance transfer period you will often pay zero interest
  • You may also be able to select a card which is more beneficial than your existing card once the introductory period ends
  • Avoiding compounding interest on your credit card balance can relieve the stress that accompanies existing debt
  • You could save the money you would pay on interest and use it for other financial purposes

Before you commit to a new credit card and sign up to a balance transfer offer, you’ll want to compare credit cards to determine the best choice for your personal circumstances.


The most important factor to consider is the length of the introductory period: this is the primary reason you will be considering a credit card balance transfer. You will need to assess your ability to repay the owing balance on your current credit card within this period to ensure a higher interest rate isn’t applied before you are able to pay the overdue amount.

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Any balance remaining at the end of an introductory period will have the card’s standard rates applied - be sure to check both the length of the introductory period and the interest rate applied following its conclusion.

How to choose a balance transfer credit card


Comparing balance transfer credit cards is very easy if you know what to look for - if you’re looking for a short-term solution then you’ll often just compare the introductory rate, period, and fees. If you plan on keeping the card beyond just paying off your existing credit card balance, you’ll want to assess each offer based on the other factors listed below.


How to compare cards:

  • Introductory Rate
  • Introductory Period
  • Transfer Fee
  • Transfer Limits and Credit Limits
  • Standard Card Interest Rates
  • Annual Card Fees

Balance Transfer Introductory Rate


The balance transfer rate is the introductory interest rate applied to the existing credit card balance you will move over to the new card. Don’t be surprised to see 0% introductory rates, as these are used by credit card providers to entice cardholders to make a switch from their current card provider. Choose the lowest introductory rate to pay the least amount of interest on your transferred balance.

Introductory Period


Remember those 0% introductory rates? Chances are you may only find them offered for a short period of time. The introductory period is your second crucial factor in choosing a balance transfer credit card, as you’ll want to assess your ability to fully repay the existing balance within the introductory period. Choose the longest introductory period with the lowest introductory rate to put yourself in the best position for repaying your balance without any interest.

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Don’t let a long introductory period allow you to be complacent with your repayments! Even if you believe you can comfortably repay your transfer balance within the introductory period, don’t delay payments. Create a repayment plan and stick to it.

Now let’s look at the two main limitations of your options: Transfer Fees and Transfer Limits.

Balance Transfer Fee


A balance transfer fee is an amount charged by the provider of a new credit card to transfer your existing balance over. A transfer fee will be set as either a fixed amount, or a percentage of the transferred balance. You’ll want to assess fees by calculating the impact the relevant fee will have on your existing balance, and see whether a fixed amount or a percentage will be less costly.

Balance Transfer Limits and Credit Limits


The other limitation will be your transfer limit, particularly in relation to your new credit limit. This may be expressed as a percentage of the approved credit amount on your new card. When transferring your existing balance, the credit card provider will need to ensure you don’t ‘max out’ your card, in which case you may be approved to transfer 95% of your new credit limit.


Evaluate the new credit limit offered by each provider, and compare the transfer limit to ensure you can transfer the full amount if required. The table below illustrates how this works.

Compare Card Limits


Balance Transfer Limit New Credit Limit Available Transfer Balance
Credit Card 1 95% $10,000 $9,500
Credit Card 2 90% $10,000 $9,000
Credit Card 3 75% $10,000 $7,500

Standard Card Interest Rates


Once the introductory period on your new credit card has ended, any remaining balance will be subject to the credit card’s standard interest rates. This standard interest rate may be either:

  • The card’s purchase rate
  • The card’s cash advance rate

Generally, the cash advance rate will be higher than the purchase rate. If you aren’t completely sure you will be able to fully repay the balance transfer from your existing credit card, your new card’s rates - and which rate will be applied - is vitally important to consider. You could end up paying a very high amount of interest on any remaining unpaid balance.


Your card’s new rates will also be a deciding factor if you are wishing to keep the credit card long term and use it following the full repayment of your existing balance.

Annual Card Fees


The last factor to consider when comparing balance transfer credit cards is the new card’s annual fees. If you plan to repay your existing balance over a number of years, your finances may suffer if you are required to pay a high annual fee. Understanding the annual fees applied to each credit card offer will put you in a better position to both repay your existing balance and avoid getting trapped in a cycle of debt further down the line.

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There are many credit cards available from many providers. Competition means there will be plenty of opportunities to compare introductory rates and periods, and find the right card.


How to get a matching offer on a balance transfer with your bank


Both banks and credit card issuers thrive on competition - when choosing between balance transfer credit card offers you’ll see plenty of competitive deals and interest-free introductory offers. Your existing bank is exactly the same - one unique approach most people may not consider is speaking to your bank directly and telling them you are considering moving to another bank to take advantage of a balance transfer offer.


Most of the time, you may be able to receive a matching offer from your existing bank in return for remaining as a customer - while this may not always work, if it does you would save on transfer fees, and also eliminate the waiting period for your transfer to be processed to a new card.


Credit Card Balance Transfer Guide


Once you’ve compared credit cards and settled on the one most suitable for your circumstances, setting up a balance transfer and activating your new card is incredibly simple. We’ve detailed these four easy steps below:


1. Confirm Transfer Balance Amount


The first step for your balance transfer will involve confirming the amount you need transferred from your existing credit card with your new provider.


2. Submit Credit Card Application


During the application, you will usually be asked to provide information regarding the balance transfer, including details on the existing provider and the amount you need to transfer to the new card. Once your application is approved, your new card provider will process the transfer.


3. Activate Your New Credit Card


You should receive your new credit card within a week following approval by your new provider. To use your new credit card, you will typically need to activate it either online, over the phone, or in person at the provider’s branch - how you can activate your card will depend on your credit card provider.


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You may receive a PIN (Personal Identification Number) for your new credit card separately, or your provider may select a temporary PIN for you, which you may change following activation.

4. Confirm Balance Transfer and Close Old Card


You will receive an estimated processing time for your balance transfer from your new credit card provider. If the transfer takes longer than expected, you can contact your provider for an update. If you have online banking, you should be able to check and confirm the transfer the moment it is processed.

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A balance transfer to a new credit card can take anywhere from five days to three or four weeks, depending on the card provider.

The final part of the balance transfer process is to close your previous credit card account. This isn’t required, however if you are transferring an existing balance to a new card, you will want to remove as much temptation as possible by cutting up your previous card - just remember to cancel the account with your bank first!


The top ways to repay a balance transfer credit card


Now that you’ve transferred your existing credit card balance to a new card, you’ll want to avoid making any common mistakes that can hinder your ability to repay the amount on your new card. Here are some helpful Money.com.au tips to assist in clearing your credit card balance faster:

Get a balance transfer card with a long interest-free period

  • Some cards offer 3 months, others offer up to 16 months. The usual amount however is 12 to 14 months with 0% interest.
  • Divide your debt by the number of months you receive in your balance transfer offer – set your repayments accordingly.
  • For example, a debt of $5,000 over a 12-month 0% offer would require repayments of $417 every month to repay.

While you pay 0% interest, use the savings on interest to repay your credit card faster. If you are transferring a balance from a credit card that charged you interest, use the amount of interest you normally would have paid as an extra repayment towards your new balance transfer card.

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Getting a balance transfer credit card doesn’t mean you can rest easy. Instead, it should be seen as a chance to go hard, stay strong and do everything in your power to repay the debt.

Cancel your old card immediately


We mentioned this above, but it deserves to be reiterated - cancel your old credit card to avoid using it again. While the simple process of a balance transfer can entice you to max out your original credit card, it’s important to remember why you applied in the first place.

Pay more than the minimum repayment amount


If you are applying for a balance transfer credit card to assist in working your way out of debt, then the best thing you can do is to always pay as much as you can afford to on each credit card payment.

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Although it may restrict your short-term spending, clearing your debt faster will give you an invaluable sense of financial freedom.

Don’t make any new purchases on your balance transfer card


It can be tempting to make purchases on your new credit card by convincing yourself that any amount added to the transferred balance won’t incur any interest due to the introductory period.


However, making purchases on your new card will only increase the total amount owing on your new card, and you’ll need to repay the transfer amount first, before you can make repayments on the purchase.


You can read about how purchases work in the section below.


How do purchases on a balance transfer credit card work?


Purchases made on a balance transfer credit card often are done so at their normal rate, aka the higher rate. Following this, when you next make a repayment, the money you put on the card will go towards the transfer amount first, meaning your higher rate purchase is attracting interest charges for longer (in many cases).


An example of how purchases attract a higher interest rate on balance transfer cards:

  • You transfer $5,000 to your new card that gives you 0% interest for 12 months
  • You then make a purchase of $500 for some new clothes
  • You then pay $500 onto your credit card at the end of the month to repay the clothes purchase - instead, the $500 pays off the balance transfer amount first
  • The $500 purchase of new clothes continues to attract interest (at a higher rate) until you repay the initial $5,000
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If you’ve managed a solid period of repayment, and just need a little help, experts suggest a balance transfer could be a useful tool. The money you save on interest could be put towards extra repayments, helping you to get ahead on your debt reduction.

Credit Card Balance Transfer Restrictions


There are restrictions on which credit cards you can transfer an existing balance. You may find you are unable to transfer a balance from one card provider to another, especially if they are within the same financial group, and applying for a balance transfer credit card with the same provider could cause your application to be declined, or potentially impact your credit history.


There are many credit card brands in Australia, though many of these will be issued by the same financial institution. Below is a quick guide to card issuers and their associated card brands, and a table with explanations of balance transfer restrictions.

  • Westpac Banking Corporation - Westpac, Bank of Melbourne, BankSA, St.George
  • Citigroup - Citi, BOQ, Coles, IMB, Suncorp Bank, Virgin Money, Card Services
  • Macquarie - Macquarie Bank, Jetstar, Myer, Woolworths

Credit Card Balance Transfer Limitations

Banking Group Restrictions These credit card issuers do not allow transfers between their associated card brands
Bank of Melbourne Balance transfers from Westpac are permitted.
Balance transfers between from BankSA, St.George or Bank of Melbourne credit cards are restricted.
BankSA Balance transfers from Westpac are permitted.
Balance transfers between from BankSA, St.George or Bank of Melbourne credit cards are restricted.
St.George Balance transfers from Westpac are permitted.
Balance transfers between from BankSA, St.George or Bank of Melbourne credit cards are restricted.
BOQ No balance transfers allowed between Citi-issued credit cards, including BOQ, Citi, Coles, IMB, Suncorp Bank, and Virgin Money.
Citi No balance transfers allowed between Citi-issued credit cards and associated brands.
Coles No balance transfers allowed between Citi-issued credit cards and associated brands.
IMB No balance transfers allowed between Citi-issued credit cards and associated brands.
Suncorp Bank No balance transfers allowed between Citi-issued credit cards and associated brands.
Virgin Money No balance transfers allowed between Citi-issued credit cards and associated brands.
Jetstar No balance transfers from other accounts issued by Macquarie Bank, including Jetstar Mastercard, Woolworths, Macquarie, Myer, and Card Services.
Macquarie Bank No balance transfers from other accounts issued by Macquarie Bank and associated brands.
Myer No balance transfers from other accounts issued by Macquarie Bank and associated brands.
Woolworths No balance transfers from other accounts issued by Macquarie Bank and associated brands.

Individual Restrictions These card issuers either allow balance transfers to certain associated brands or are independent - i.e. only refuse transfers within their main brand.
Bankwest No balance transfers from other Bankwest accounts. Balance transfers between Bankwest and CommBank are permitted.
Commonwealth Bank No balance transfers from other CommBank accounts. Balance transfers between CommBank and Bankwest are permitted.
Latitude Financial Services No balance transfers from other Latitude accounts or its associated entities, including Gem Visa, 28 Degrees Platinum Mastercard, GO Mastercard and Latitude Infinity.
NAB No balance transfers from other NAB accounts.
Westpac No balance transfers from other Westpac accounts. Balance transfers from BankSA, St.George or Bank of Melbourne credit cards are permitted.
American Express No balance transfers from other American Express accounts.
ANZ No balance transfers from other ANZ accounts.

0% balance transfer for life?


There are also some credit cards offering 0 per cent for the life of the card. These are quite new at the moment but will certainly become more prolific in future and certainly worth considering provided you read the terms and conditions that you will need to fulfil in order to keep receiving 0 per cent.


It is most likely that you will need to spend a certain amount of money on the card every month for the length of time that you have the card. If you don’t spend the required amount then you will lose the interest-free status. These offers are only available to new customers, if it is being offered by a member of the same group then it is unlikely that you will be entitled to a balance transfer offer.


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The rewards you might generate with a credit card affiliated with a major retailer for your normal weekly shopping might outweigh the rewards offered by a balance transfer scheme – it pays to shop around.


Can a balance transfer credit card be used to repay debt?


If you’re feeling stuck in a cycle of credit card debt, it’s easy to feel as though you have limited options. There are two ways you can consolidate debt using a balance transfer credit card - your approach will depend on the amount of the balance you can transfer.

Does the balance transfer amount cover your old debt in full?


If the balance transfer does cover the full amount:


  • Transfer the debt to a new credit card: cancel the old card
  • Hide the new card and avoid using it
  • Begin repayment strategies

If the balance transfer does not cover the full amount:


  • Cut up the old credit card to avoid using it
  • Divert incoming salary to pay down remaining old credit card debt
  • Use the debt snowball method to repay the leftover bit of old debt
  • Make minimum required payments on your new card
  • Once the old card is repaid, rapidly begin repayment strategies on the new card

5 steps to quickly manage debt with a balance transfer credit card


This is a simple guide if you want to stop spending on your credit card and repay the outstanding balance. While it will take commitment, these five, simple steps can help you repay or reduce your existing credit card debt to put you in greater control of your finances:

  • Choose a suitable balance transfer credit card using our guide above (Ideally, 0% interest with a minimum introductory period of 12 months)
  • Set up an everyday transaction account as your primary way to spend money
  • Transfer the existing balance and close your old credit card account
  • Cut up your new credit card to resist the urge to spend on it
  • Set up a recurring monthly repayment that is three times the minimum (or as close to this as you can comfortably afford)

This is a simple strategy with multiple benefits:

  • You won’t be paying interest on your new balance - look at this as a gift and a reason to commit to further repayments, not an opportunity to reduce repayments or spend extra money
  • The introductory period will give you the opportunity to adjust your repayments to the maximum amount you can afford, without the stress of increasing interest
  • Committing to regular repayments is a crucial step in developing a positive mentality around budgeting

Make extra repayments, no matter how small


Make sure you save the BPAY details of your new balance transfer credit card inside your internet banking. Make monthly repayments at the set amount as outlined above but also look to make micropayments whenever possible.

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Always pay at least the minimum monthly repayments to avoid overcharge or late payment fees. Ideally, you should be paying more than this to get out of debt as fast as possible.

Build a lump-sum payment from small change


During your 12-month introductory period, you’ll want to start building a small-change investment. One method of doing this is by using the Raiz app - formerly called Acorns - which automatically invests spare change by rounding up purchases made with a debit card.


At the end of the introductory period on your balance transfer card, you can withdraw the available funds and use the amount as a lump-sum to further reduce any remaining debt on the credit card before it accrues interest.

What to do after your balance transfer introductory period


Once the introductory period ends, stick to your original repayment plan developed above. You may be paying off interest on the remaining balance as well, but you should now have a significantly lower amount of debt to repay. You should also have developed a solid budgeting mentality to remain motivated in clearing any remaining balance.

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The trick to a successful balance transfer offer is to ensure you don’t get to the end of the interest-free period without either having repaid your debt or at least having a game plan on what to do with the remaining leftover debt.

Once the introductory period ends, the debt will revert to the usual purchase rate (and occasionally the cash advance rate on some cards I believe). This means that your debt all of a sudden will incur interest thus why you want to either be debt-free by this time or have severely paid off the majority of your debt over the balance transfer offer period.

Don’t assume you will get another balance transfer card after the offer ends


Many people assume they can simply hop, skip and jump between balance transfer offers. The reality is however that many people get rejected for their next card because of their credit rating, changed circumstances or other reasons.

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Never assume that you can simply change to another card. Use the now to repay your credit card and avoid the usual consumer trap of thinking there is ‘always tomorrow’.


Summary


Balance transfers are where a customer transfers an existing balance to another card. This balance is commonly from another credit card but could also be from a bank account. The new card will then offer a 0 per cent interest rate on the balance for a specified period of time.


The offer period varies from card to card, but traditionally this period has been around 6 months. However, there are now companies offering longer periods sometimes as high as 15 months.


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