Guide to Balance Transfer Credit Cards – Forbes Advisor Australia

Credit card debt can be a huge problem in Australia, with an increasing number of cardholders using their cards to cover the rising cost of living.

Data from the Reserve Bank of Australia shows that as a nation we collectively have 13,168,856 credit cards in circulation in Australia, representing an interest-bearing national debt of $17.9 billion.

The medium the credit card balance is $2,887, while the number of personal and payment card transactions for the month of July totaled 272 million transactions.

Either way, Australians love their plastic, some more than others. Enter balance transfer credit cards.

How does a balance transfer credit card work?

A credit card balance transfer involves transferring the amount you owe (your balance) to another credit card.

A balance transfer allows you to transfer debt from one account to another. If you have high interest debt, it may be worth considering this option as a way to save on interest charges, with some lenders offering 0% interest for an introductory period.

It works like this: apply for a new card from another lender and initiate a balance transfer by paying off the balance.

The new lower rate is usually offered for a fixed term with the aim of allowing the lender to win new business, before moving to a more standard rate.

Transfers of this type are likely to be more common as credit becomes more expensive in Australia as interest rates rise, with interest rates varying from lender to lender. This may be an option to settle your debt.

But there are limits. While some lenders offer a balance transfer, others don’t want your debt.

Here is a step-by-step approach on how to do it:

  • Start by looking for a card that meets your needs.
  • Read the terms and conditions.
  • Apply to transfer your debt to the new lender.
  • Your new credit card provider will move the balance on your behalf.
  • Close your old account.
  • Set up a regular direct debit to continue paying off your debt.
  • Know when the introductory period ends and when the lender will return to the higher interest rate period.

Also keep in mind that if you’re struggling to control your credit card balance, a balance transfer might not be the right option for you, Moneysmart warns. Instead, you might be better off looking at other options.

If you are having difficulty with your debts, you can access free financial advice with the National Debt Helpline on 1800 007 007.

How to Compare Balance Transfer Credit Cards

Once the interest-free introductory period is over, the new credit card might be more expensive in the long run, so compare the fees.

Keep an eye out for lenders that offer 0% balance transfer with no upfront or annual fees, which may represent a better deal.

Of course, the purpose of a balance transfer is to save money, so look for a card that helps keep your costs down.

If you’re considering transferring your balance to another lender, it’s best to try to pay off as much debt as possible before making the switch. Consider this an opportunity to get your debt under control and make the transition a line in the sand, as you move forward with better habits for paying off debt with the new lender.

What to compare:

  • Duration of the offer: The longer the duration of the offer, the more time you will have to pay off your debt.
  • Fees and charges: These can add up, so read the fine print.
  • Check the criteria: If you’ve been in debt for a long time and it’s increasing every month, keep in mind that you might not be approved.
  • Interest Rate: Many balance transfer credit cards offer a 0% interest rate for a period, before reverting to the usual fee. If you haven’t paid off your balance within that time, you’ll be charged higher interest, so use the move as motivation to clear your debt.

What are the benefits of balance transfer credit cards?

  • Save on interest: Transferring your existing balance to a new lender means you can access low or no interest for a while.
  • Pay off your debts faster: Not having to pay interest means you should, in theory, be able to reduce your debt faster.
  • Roll the debt into one: This can allow you to consolidate your debts in one place and cover repayments with one monthly payment.
  • Access Bonuses: Some lenders offer bonuses like insurance or rewards, which could prove invaluable.

What are the disadvantages of balance transfer credit cards?

  • Costs: Nothing is free and the fees could cost you more in the long run, so be sure to read the fine print. There will also be annual fees, which can range from around $50 to $150.
  • Higher rates: After the introductory period ends, the lender will switch to the higher rate. If you don’t realize this, you could end up paying more than expected in the long run.
  • Transfer refusal: The lender may refuse to hire you, depending on what you owe. Be prepared for this possibility.
  • Credit score: The application for a new credit card appears on your credit report, so if your score is not good, you could be kicked out of this option.

FAQs

Which balance transfer credit card is the best?

There is no “best” card because you have to match your situation (and your credit history) with willing lenders. However, as a general rule, look for 0% interest cards that offer that rate for 24-36 months, with low fees.

Are 0% balance cards possible?

Are balance transfer credit cards good?

Are there free balance transfer cards?

Can I transfer to another card within the same bank?

Can I transfer more than one balance?