Compare balance transfer credit cards

What is a balance transfer credit card (and when you should consider one)

A balance transfer credit card is when you take your debt from an existing credit card (your balance) and move it to a new one.

The reason you might do this is because balance transfer credit cards typically apply a low introductory interest rate to your existing debt – potentially as low as 0% – though only for a set time.

A balance transfer credit card can be a good option if you want to get on top of your debt, as a low or 0% interest rate can help you pay off the amount you owe faster.

Right, what’s the catch?

Low or 0% interest rates on balance transfer credit cards are attention-grabbing, but they are only available for a limited time. Once the set period ends, the interest rate can increase significantly, so it’s best to pay off as much debt as you can while you’ve got an introductory rate.

You should also be cautious of using a balance transfer credit card for new purchases. This is because new transactions aren’t often included in an interest-free period until your transferred balance has been paid off, or your monthly minimum repayment has been met.

Is a balance transfer credit card worth it?

A balance transfer can help you save money by slowing down mounting interest, or putting a stop to it altogether (at least for a limited time).

Wondering how much you could save? Here’s a scenario:

Say you owe $10,000 on your current credit card which has a 20% interest rate. If you can afford monthly repayments of $600, it will take you 1 year and 8 months to pay it off, and you’ll ultimately pay $1,814 in interest.

If you move that debt across to a balance transfer credit card with a 0% interest rate for 12 months, you can wipe away interest repayments for at least a year. By doing this, you’ll be able to pay off your debt much faster.

However, if you use a balance transfer card on new purchases or aren’t able to repay your debt within the balance transfer period, you could end up paying high interest rates and fees.

There may also be fees attached to your new balance transfer card, or the ongoing interest rate that applies after the introductory period may be higher than your current credit card.

These factors might mean a balance transfer credit card is not right for you, so consider your individual circumstances before applying.

What about my credit score?

When you apply for a credit card, including balance transfers, a note is made in your credit report.

This alone isn’t necessarily a bad thing – it’s just one part of your overall credit history. What matters is how your balance transfer application fits into the overall picture.

For example, a balance transfer can affect your credit score if you’ve applied for balance transfer credit cards multiple times over a short period, or you have a history of unpaid debt.

We have a dedicated guide on how to improve your credit score if you need some tips.

How to compare balance transfer offers

Five key questions you should ask when comparing balance transfer deals and choosing a card.

• Is there a 0% interest offer? Not all balance transfer cards are created equal. Most come with an interest-free period, but some will just offer you a low rate which is usually under 10%.

• How long is the interest-free period? This one’s important, because you should aim to have your full balance transfer paid off before the interest-free period ends. Choosing a longer balance transfer usually means you can make smaller monthly repayments, and generally just gives you more time to get on top of debt.

• Will you have to pay a balance transfer fee? Paying a fee could be worthwhile if it works out to be less than the amount you’ll owe in interest without doing the balance transfer. Keep in mind that this fee is usually a percentage of your total balance, so for bigger debts it can get expensive.

• Is there an annual fee to budget for? If you’re working to pay off a credit card debt, annual fees can be a disadvantage to consider. A balance transfer credit card with an annual fee is an ongoing cost that you’ll need to stay on top of.

• What’s the balance transfer ongoing rate? Take note of the interest rate that will be charged on your balance if you don’t manage to pay it off during the introductory period (and note the interest rate for new purchases). Don’t undo all your hard work by choosing a card with high interest rates.

How to choose a balance transfer credit card

When choosing a balance transfer credit card, we suggest looking for a card that offers an interest-free period that is long enough for you to comfortably pay off your debt.

For example, if you have a $5,000 balance and choose a card with 0% interest for 12 months, you’ll need to pay at least $417 each month to clear your balance before the interest-free period is over.

If you’re struggling to make a decision, you can also take a look at our picks for the best credit cards each month.

What is a balance transfer fee?

A low or 0% interest rate can catch your eye, but don’t forget to consider the balance transfer fee too. Banks typically calculate the fee as a percentage of your total balance transfer, and it can range between 1-3%.

What to do if you’re in credit card debt

If you’re opting for a balance transfer credit card to get on top of your existing debt, here are some tips to do it the right way.

• Plan your balance transfer and pay off your existing balance: Make your payments on time to avoid late fees, and pay off as much as you can each billing to ensure you get your balance down to zero. A lengthy balance transfer period can help you achieve this.

• Limit future spending: This might involve creating a budget to ensure you have enough money coming in to cover the money going out.

• Lower your credit card limit: A high credit card limit can tempt you to spend more than you can actually afford. By lowering your limit, you’ll remove that temptation and minimise the chances of a big debt blowout.

• Automate credit card repayments: Do you find yourself with a balance just because you forget your credit card due date is coming up? Try setting up automatic repayments to cover your spending, or set yourself reminders of due dates.

If you’re still struggling to pay off your balance, make repayments and stay debt free, it might be time to look at other options. Some steps you can take include:

• Look into your bank’s financial hardship policy: If you’re struggling to meet credit card repayments, talk to your bank about arranging a new repayment scheme, postponing repayments for a while, or other options available to help.

• Contact the National Debt Helpline: This is a great resource for free advice and support, or to talk to a free financial counsellor. You can call 1800 007 007 or visit the National Debt Helpline website.