Balance transfer
credit cards

Balance transfer credit cards

Have you racked up debt on your credit card with a high interest rate attached? If you sighed “yes” then a balance transfer card could help you ditch that debt for good.

A balance transfer works by allowing you to move your existing credit card debt across to a new credit card and pay low or no interest at all on your transferred debt for a set period, usually between 3 - 24 months. The obvious benefit is that without a hefty interest rate hanging over your head you can repay that debt faster, because more of your repayments are going towards your balance rather than interest charges.

How much could I save with a balance transfer? 

Wondering how much you could save? Check out this scenario:

Say you have $10,000 owing on your current credit card with a 20% interest rate and you make monthly repayments of $600. To pay this off, it will take you 1 year and 8 months and you will pay $1,914 in interest. Whereas if you move that debt across to a 0% balance transfer card, you will pay no interest at all and on top of that you will also repay your debt three months earlier. Think of all you could do with nearly $2,000!

But, and there is a but, if you use the balance transfer card unwisely by spending on the card or failing to repay the debt within the balance transfer period you could end up paying high revert rates, fees, and find yourself back where you started.

How do I avoid the traps of a balance transfer card? 

So avoid the traps of a balance transfer credit card, by reading Mozo's top BT rules below:

Rule 1# Create a plan of attack

Unlike a debt consolidation loan where the provider tells you how much you need to repay each month for the term of the loan, with a balance transfer card all you're required to pay is the minimum monthly payment amount, which is usually 2-3% of the balance.

But the minimum repayment isn't going to clear your debt within the BT period. So make sure you use a debt payments calculator to work out how much you'll need to repay each month to hack away at your debt before the balance transfer period comes to an end. For instance, with a $5,000 balance and a BT period of 10 months, you will need to repay $500 every month to ensure your balance is gone by the end of the BT term.

Rule 2# Compare balance transfer deals

Apart from a generous BT period, when you begin your balance transfer comparison you'll also need to look for:

A low annual fee: If the sole purpose of taking out a balance transfer card is to pay off your current debt, there is no reason you should be paying a high annual fee, especially when you consider many balance transfer cards in Mozo's database have an annual fee under $50.

Low revert rate: After the intro balance transfer period comes to an end, some BT cards revert to the much higher cash advance rate that can reach near the 22% mark. So make sure the balance transfer card you sign up with reverts to a low purchase rate, to ensure you don't get stung after the balance transfer period has come to an end.

Compare balance transfer cards using Mozo is easy as we've developed a unique Switch & Save Calculator which will help you find cards that will save you the most in interest and fees. We will compare your existing card, balance owing and repayments with hundreds of other cards in the market. Like all of our comparison tools, it's free, so why not see how much you can save by switching now?

Rule 3# Check your credit rating

Did you know applying for too many balance transfers could affect your credit rating, especially if you are rejected by multiple banks or card providers? That's why it's important to get a free copy of your credit rating prior to applying for the new card, to check if there are any mistakes that could affect your chances of being approved for the balance transfer card.

Rule 4# Don't use it like a regular credit card

Once you have the card in your pocket, you could be tempted to whip it out at the checkout but spending on the new BT card will only get you deeper in the red. This is because the low balance transfer interest rate doesn't apply to new purchases, instead those new gadgets will be charged the card's much higher purchase rate. And you won't get the benefit of any interest free days on new purchases until you have paid off your outstanding debt in full.

Another thing to be mindful of is payments have to be made towards the highest accruing debt, which is usually the purchase rate. So if you spend $300 on the card and you've worked out you can afford to repay $500 a month, $300 will go towards paying off the new purchases first and only $200 will go towards paying off the original debt.

Rule 5# Steer clear of cash advances

That 0% interest rate also doesn't apply for ATM cash withdrawals, instead you will be charged the much higher cash advance rate mentioned above, soaring close to the 22% mark in some cases.

Rule 6# Pay off the balance in the BT period

Continually moving your debt from one balance transfer card to another, may hurt your credit rating and your likelihood of being approved for other banking products like car loans, personal loans and home loans later on. So make sure you do your best pay out the debt within the 0% balance transfer period.

Rule 7# Stay debt free

Lastly, don't revert back to your old spending habits, instead only spend within your means by creating a budget and if you decide to keep on using the credit card pay the balance in full each month to avoid the bite of interest and late payment fees.

How do I transfer my debt?

• Step 1 - Choose a BT deal: You can use the balance transfer comparison table above or our Switch & Save Calculator to compare BT deals. Once you’ve found a debt consolidation that ticks the boxes for you, click on the blue ‘go to site’ button, which will take you to the lender’s application page.
• Step 2 - Apply: You will then need to fill in your information (such as your employment, assets and liabilities) using the provider’s online application form and provide them with your identification like your Australian driver's licence or proof of identity details. There will be a section on the application form which is specifically about balance transfers. You will be asked to nominate the balance transfer amount and details of your current credit card. This is so the provider can transfer the debt from this card onto the new card for you.
• Step 3 - Approval: Credit card providers can differ in the length of time they take to get back to you, so it could take up to 2 business days until you receive a response, usually by email letting you know that you have been approved for the card.
• Step 4 - Debt transfer: Once you have been approved, your new provider will use the credit card details you gave them when you applied to transfer your balance from your old card to the new BT card.
• Step 5 - New card arrives: Your new card will arrive in the mail. It is a good idea to put the new card in a drawer (not in your wallet) so that you’re not tempted to spend on the new card. Set up an automatic repayment which will have you debt free by the end of the BT period.
• Step 6 - Close old credit card account. Once your debt has been rolled across to the new credit card, you’ll need to close the old credit card account yourself. Don’t leave it open or you could end up paying an annual fee on a card you are no longer using or worse, start spending again and get further into debt.

Am I eligible for a balance transfer?

Apart from the usual requirements of being over the age of 18 and an Australian resident, most banks also require you to be a new customer, as they use balance transfer cards as a way to entice you to make the switch from your current provider.

Does it cost anything to transfer debt?

Some banks have begun charging a one off balance transfer handling fee payable upfront, which is usually a percentage (between 1 - 3%) of the balance transfer amount. For instance, if there was a 1% fee and you transferred $5,000, you would be charged a fee of $50.

The handling fee is usually linked to BT cards that have longer balance transfer terms (18 - 24 months). There are a number of card providers that don't charge a fee, so it would be important to weigh up the cost of paying a handling fee upfront against the benefit of having more time to pay back the debt at little or no interest.

Are there interest free days with BT cards?

Generally speaking, if you carry any balance on your credit card you will not be eligible for interest free days until you have paid the balance back in full. Once you have a zero balance, you will again be eligible for the card's standard interest free days on new purchases which will be between 44 - 55 days depending on the card.

To ensure you get the most out of interest free days you always need to pay the balance off in full by your card's monthly due date.