A complete guide to balance transfer credit cards in Australia

Balance transfer credit cards are easily one of the most beneficial financial tools we have at our disposable when in serious credit card debt.

This is because they give us an opportunity to consolidate credit card balances and pay off the total balance without incurring interest for a set period of time.

In this article we’re going to take a close look at balance transfer credit cards, how they work and to use them to ensure maximum savings. In addition we’re going to have a look at some of Australia’s best balance transfer credit cards as well as offer you some of our leading balance transfer credit card tips.

What is a balance transfer credit card?

Balance transfer credit cards are also commonly referred to as 0% interest balance transfer credit cards and there are more than 100 available on the market at the moment. They allow you to transfer one or more credit card balances form other credit cards onto it so that you can benefit from its 0% interest period.

You should ideally not make purchases or draw cash using a balance transfer credit card as the interest rates will very likely be high and you will defeat the purpose of the entire exercise and make it hard for yourself to get out of debt.

This interest free period generally lasts for a period that ranges from 6 to 26 months and if you make any new purchases on the balance transfer credit card you will have to pay interest on that balance. In addition, if you make a purchase on the card, any money paid will be used to pay down this debt rather than the transferred debt as it will be considered the highest accruing debt.

Some of Australia’s leading balance transfer credit card providers:

• ANZ,
• Bankwest,
• Citi,
• Commonwealth Bank,
• HSBC,
• Suncorp Bank, and
• Westpac.

How do balance transfer credit cards work?

As mentioned, the credit card will have an interest free period and, as with any credit card you will be allocated a credit limit. You will be able to transfer balances up to a set percentage of this credit limit. Some credit cards allow you to transfer up to 100% of your credit limit but others are limited to 80% or 70%.

If you have a few credit card balances that you want to consolidate onto the balance transfer credit card you will have to be very precise and work out the totals of each as well as your transfer limit.

There is also a balance transfer minimum that applies to most cards so if you have a small balance you’re trying to move over, you may not be able to do so. This is why it’s crucial to establish all the details and features of your balance transfer card before applying for one.

You will then have a new minimum repayment to keep up with which will generally be in the region of 3% of your total balance. This minimum repayment will rarely, if ever, get you to repay your full balance before the interest free period expires which is why you need to work out a more suitable figure and stick to it.

Working out how much you need to repay every month to clear the balance within the interest free period is as simple as dividing the total balance by the number of interest-free months you’ve got on your side. You can also make use of a loan calculator to find out exactly how much you’re saving by using a balance transfer credit card.

When you should use a balance transfer credit card

• If you have one or more credit card balances that you are trying to pay off.
• If you’re being charged hefty interest on your credit card balances.
• You want to repay your credit card balances relatively quickly.
• You can repay the full transferred amounts within the 0% interest period.
• If the sum of your credit card balances does not exceed the maximum balance transfer limit.
• If the credit card balance or balances are more than the minimum balance transfer amount required.
• You are able and committed to managing your credit cards better and getting out of debt.

What to look for when comparing balance transfer credit cards

When comparing balance transfer credit cards, you need to pay attention to a range of factors but you must remember that in the end you are choosing among tradeoffs. A credit card that has a low revert rate will very likely have a shorter interest free period.

A credit card that has a low annual fee will very likely have a higher revert or purchase interest rate. Write down what it is that you want to achieve with your balance transfer credit card and find one that will help you achieve your financial goals.

• Duration of the interest free period. You need to ensure you will be able to repay your full credit card balance within this time frame. If not, a card with a low interest rate may actually serve you better in the long run.
• Almost all credit cards carry an annual fee, make sure you know what this is.
• Check to see what the revert rate and purchase rate is.
• Watch out for the initial balance transfer fees that you may be charged, these can make the whole deal a lot more expensive than you bargained for.

When you should NOT use a balance transfer credit card

• When your credit card balances are excessively high and exceed the maximum transfer limit of the balance transfer cards you qualify for.
• When you credit card balances are small and you can repay them fairly quickly OR they do not add up to the minimum balance transfer amount required.
• When you are experiencing financial hardship and are unsure of whether or not your will be able to keep up with the required repayments.
• If the balance you want to transfer over is not on your name (for example if a credit card is in your spouse’s name).

10 tips for those looking to use a balance transfer credit card

1. Always compare balance transfer credit cards but do not apply for multiple cards by filling in lots of online loan applications, choose the best offer you can find and apply for that only to protect your credit.
2. Always compare the purchase rate as well as annual fees in addition to the length of the interest free period.
3. Make sure the total you want to transfer is within the minimum and maximum transfer limits of the balance transfer card.
4. Make more than the required minimum repayment as minimum repayments will not allow you to clear the balance completely before the interest free period expires.
5. Aim to repay the balance at least a month before the 0% interest period expires.
6. After transferring balances onto your balance transfer credit card avoid making any purchases on the credit card until you pay off the balance completely.
7. Make sure you are able to repay your full balance before the 0% interest period ends as the revert rates are generally quite high.
8. Be aware that using a balance transfer credit card may hurt your credit.
9. Never draw cash from an ATM using a balance transfer card as interest free periods do not apply and you will be charged a hefty interest rate and cash advance fees for the withdrawal.
10. You have the option to keep the credit card that you transferred the balance from open to help you boost your credit but you must be aware that you will still need to pay the service or annual fees on the card even if you do not use it.