How to choose the best balance transfer credit card
Balance transfer interest rate
The balance transfer rate is the limited-time interest rate applied to the existing credit card balance you move over to the new card.
It’s common to see 0% introductory rates offered by providers for periods ranging from 6-26 months. The aim is 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 during the offer period.
Balance transfer offer duration
Next, you’ll want to look at how long that promotional balance transfer interest rate will last.
Generally balance transfer offers are for 6-26 months depending on the card.
Choose the longest introductory period with the lowest introductory rate to put yourself in the best position for repaying your balance without incurring any interest.
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. It's almost always charged as a percentage of the transferred balance (3% is the most common fee on Money.com.au's database).
For example, a balance transfer fee of 3% on an $8,000 balance will mean a $240 upfront fee.
Remember the balance transfer fee will offset some of the money you save in interest, so it’s important to find a low fee to make the balance transfer worth your while overall.
Balance transfer limit
Will the new card allow you to transfer the entire balance of your old card? That is generally beneficial as it means you can completely close the existing credit card account and focus on paying off the balance of the new card.
But when transferring your existing balance, the credit card provider will need to ensure you don’t ‘max out’ the limit on your new card. This means you may only be approved to transfer a percentage of your new credit limit. For example, many providers will only allow you to transfer a balance of up to 80% of the limit on your new card.
'Revert rate' on the card
When the introductory balance transfer offer period on your new credit card ends, any remaining balance will be subject to the credit card’s standard interest rate. This ‘revert rate’ may be either:
- The card’s purchase rate, or more likely...
- The card’s cash advance rate
If you're not sure you’ll be able to fully repay the balance transfer from your existing credit card during the offer period, this revert rate is vitally important to consider. Look for a low interest rate credit card if possible.
If not, you could end up paying a very high amount of interest on any remaining unpaid balance. You could also be stuck with a high rate on any new purchases if you intend to keep the credit card after the initial balance is cleared.
The credit card fee
Another factor to consider when comparing balance transfer credit cards is the new card’s annual fee.
If you plan to repay your existing balance over a number of years, a high annual fee will make clearing your balance more all the more challenging.
However, there are plenty of no annual fee credit cards to shop around.
Transfer eligibility
Before you apply, it's very important to check if the provider of the new card will allow balance transfers from your old provider. Some providers won't allow balance transfers from banks in the same issuer network as them, or other card providers who don't meet their transfer requirements for another reason. You can't transfer a balance to NAB from Amex, for example.
Pretty much no balance transfer offers will allow you to transfer a balance from a card the provider itself has issued.
Focus on cards that will work best for the job at hand
Sean Callery, Editor of Money.com.au
"If you’re serious about paying off debt, consider treating your balance transfer as a one-off project. In other words, pick the card that has the best balance transfer offer for that specific task, allowing you to pay down your balance in the timeframe you need with minimal interest and fees. Then once it’s served that purpose, seriously consider closing the account. You can always get another credit card later on if you need one, based on what's important to you at that point."
Sean Callery, Editor of Money.com.au
How a credit card balance transfer works
A credit card balance transfer means moving all or part of your existing credit card balance (or the balances of multiple cards) to a new lower-cost credit card. There’s often a 0% interest rate on the transferred balance during the offer period. Here's how it works...
Helps you clear credit card debt faster
Some credit cards come with a special offer of a reduced interest rate on an existing balance you transfer from a different card for a limited ‘balance transfer period’. This makes it easier to pay down debt as less interest is being added to your balance.
Low or 0% interest for a limited period
The best balance transfer deals offer 0% interest, with balance transfer periods of between six months and two years, or longer on some cards.
Watch out for high fees and ‘revert rates’
You may be charged a balance transfer fee, which is a percentage (usually 1-3%) of the balance you’re transferring. At the end of the introductory period, any remaining balance on the new credit card will have a higher interest rate applied to it. This is usually the card's cash advance interest rate.
New purchases are allowed, but...
It's best to minimise (or better, avoid) new purchases while you have a balance transfer. Adding to your balance will simply make it harder to pay off your existing balance. Plus, depending on the card, you may not have any interest-free days on new purchases if you haven't made what's known as the Interest Free Days Payment on your balance by the due date while you have a balance transfer.
Pros and cons of a balance transfer credit card
Pros
- Access low interest rates or pay no interest at all on an existing balance during an intro period.
- Because interest is not being added, you may be able to pay off your credit card balance faster.
- The balance transfer intro offer gives you a clear timeframe to work towards paying off debt.
- You may be able to get a credit card that’s better than your existing one overall, even when the offer ends.
Cons
- There could be an initial balance transfer fee to pay which will cancel out some of your savings.
- You'll likely be charged a much higher interest rate if there is any balance left when the initial offer period ends.
- The intro rate only applies to the existing balance – new purchases will incur interest.
- Balance transfer limits mean you may not be able to transfer your entire balance to the new credit card.
How to do a credit card balance transfer
Confirm the balance transfer amount
Work out the amount you need to transfer to your new balance transfer credit card. Remember, you can usually transfer multiple balances if needed. The average credit card debt in Australia is around $3,500.
Check if you’re eligible
The new credit card will have eligibility criteria you’ll need to meet. This generally includes a credit check and there are usually minimum income requirements.
Submit a credit card application
You’ll need to provide information about the balance transfer amount and the existing credit card provider(s). Like all credit applications you’ll also need to give information about your expenses and other non-credit card debts.
Set up the new card & close the old one
Your new provider will help you get set up with online banking so you can manage your card from your phone. If the balance has been completely cleared from your old card, consider closing the account completely to avoid any further spending or being charged fees.
Mistakes to avoid with a credit card balance transfer
1. Keeping your old credit card(s)
This is no time for loyalty to your old card and the provider. Unless there’s a really good reason to keep the account open (e.g. you will need the insurance offered through the card) close it so you’re not doubling up on card fees.
2. Only making the minimum repayment
If you only make the minimum monthly repayment on the balance transfer, you won’t clear the balance during the special offer period. Instead divide your total balance by the number of months the balance transfer offer lasts, and make that your monthly repayment amount.
3. Making new purchases on the card
The focus should be on paying down the existing balance, not adding to it. When you get your new physical card, cut it up and don’t add it to your mobile wallet. That way you’ll avoid the temptation to use it for spending.
4. Choosing a card with a bonus points offer
Some credit cards come with both a balance transfer offer and a bonus points or cashback offer. While it’s technically possible to access both, the bonus offer will almost certainly require you to spend using the card to qualify for, which may impact your ability to pay off the balance transfer.
5. Applying if you have serious credit or debt issues
If you're not able to make the repayments on your credit card currently, it’s unlikely you’ll be approved for a new credit card to transfer the debt. Instead, you may be better speaking to your current provider’s hardship team for support.
6. Assuming a balance transfer is right for everyone
If you genuinely struggle with credit card discipline, consider whether getting another credit card is the best solution. After all, a balance transfer credit card is just like any other credit card, which will allow you to spend on credit up to the card limit.
7. Overlooking the other options
You can also consider a debt consolidation loan. You use the loan to clear your card balance and then pay it off over a fixed term. The advantage with this is that there is a set timeframe for paying off the debt, but the lender will charge interest.
8. Keeping the new credit card once the balance is cleared
With a balance transfer card, the ideal end result is a $0 balance at the end of the promotional period, at which point you can say ‘thanks very much’ and cancel the card. Keeping the card could simply mean you eventually end up back where you started.
If you're struggling with debt, the National Debt Helpline (1800 007 007) is also available with free information and advice.
*Why you can trust Money.com.au when comparing balance transfer credit cards
We’ll let you in on a little industry secret. Some credit card comparisons only show a fraction of the options actually available. The cards that ‘make the cut’ are simply the ones that pay to be there. But that’s not what we do at Money.com.au. The balance transfer comparison on this page automatically features each and every option on our database. What's more, our expert picks are precisely that and are not influenced by our commercial agreements. It means you can trust us to show you more options, including ones you may not find elsewhere, and to highlight the cards we genuinely believe are the best. In the unlikely event that you find an offer we’re missing, please tell us and we’ll gladly add it.
