Crushing debt: a guide to balance transfer credit cards
If your new year’s resolution is to tackle your hefty credit card bill head-on, then great! If your plan for 2012 was to stick your head in the sand and let the interest pile up, well, you need this more than anyone…
So the answer to your troubles? A balance transfer credit card of course.
The idea is simple. You transfer your current debt to a new card with a much lower, ‘balance transfer’ rate. The bank gets a new customer, you pay less interest. Winning!
If you play your cards right, you can smash that debt in no time at all and save yourself a heap in the process.
To make life simple, we’ve taken three possible scenarios and have provided solutions for each. For ease of comparison, we’ve assumed balances are being transferred from a credit card with an interest rate of 17% p.a. and annual fee of $65 (which is equivalent to the average Aussie card, excluding platinum).
Scenario 1. Debt of $1,000 paid off in monthly installments of $200
With monthly payments of $200, it will take 6 months to repay your current card at a cost of $110 in interest and fees.
Winning hand: ANZ Platinum Card – 0% on balances transferred for 6 months, plus no annual fee in the first year you would be able to pay back the full amount without paying a cent in interest. Potential saving $110
Also in the deck: Virgin No Annual Fee Card – with no annual fee and a balance transfer offer of 2.9% for 6 months you stand to save $102
Scenario 2. Debt of $5,000 paid off in monthly installments of $500
With monthly payments of $500, it will take 11 months to repay your current card at a cost of $495 in interest and fees.
Winning hand: St George Vertigo – an awesome balance transfer offer of 0.99% for 12 months and a reasonable annual fee of $55 means you’ll repay the debt in 10 months and save yourself $417. This card is also issued through Bank of Melbourne.
Scenario 3. Debt of $5,000 paid off in monthly installments of $100
With monthly payments of $100, it will take 7 years 4 months to repay your current card at a whopping cost of $4,279 in interest and fees.
Winning hand: St George Vertigo – the great BT offer for 12 months plus the excellent ongoing rate of 13.24% would save you an astonishing $2,719. This card is also issued through Bank of Melbourne.
Note: the above are still preferable to any personal loans on the market
Balance Transfer Tips
Horses for courses: pick a card which matches how quickly you can repay your debt. Try our credit card health check to make life easy.
Beware the revert-rate rort: When balance transfer promo rates end, some cards will revert to exorbitant cash advance rates instead of the standard purchase rate. Be sure to check before you apply.
Check your credit rating: a poor credit history could see your balance transfer dream dashed. Pick your battles and don't apply for 100 cards at once! Details on getting a free copy of your credit report can be found here.
Repayment hierarchy: Some cards make you pay off purchases before balance transfers, so don’t spend up big and forget that debt of yours whilst the interest piles upCompare balance transfer credit cards.