Considering a balance transfer to save money and get out of debt? While the allure of 0% interest is tempting, there's a crucial detail you shouldn't overlook: the revert rate.
Hopefully you'll have your debt paid off by the time the introductory period ends, but if not, here's what the revert is and how you can avoid it.
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- The revert rate is the interest that kicks in post-introductory offer.
- It can be higher than the standard purchase rate.
- Try to clear the debt before the introductory offer ends and avoid the revert rate.
What is the balance transfer revert rate?
The revert rate is the interest rate that applies to any of the balance transfer that remains when the introductory period ends. At that point, any unpaid amount will start accruing interest at this rate instead of the introductory balance transfer rate.
With a quick comparison of credit cards, you'll notice the revert rate varies across the market. It is typically either the standard ongoing purchase rate or the cash advance rate (usually the higher of the two).
- Standard purchase revert rate. This is the interest rate that is applied to purchases made with the credit card.
- Cash advance revert rate. Can be the same as the standard purchase rate, but is often higher by several percentage points.
Tips to avoid the revert rate
- Know when the promotional period ends. Mark it on your calendar and set reminders so you don't forget.
- Regular repayments. Calculate what you need to pay per month so you are debt-free by the end of the introductory period.
- Avoid spending with the card. If possible, don't make new purchases on your balance transfer card, as these attract interest and complicate repayments.
- Consider another balance transfer. If you're approaching the end of the introductory period and still have a significant debt left, you could consider transferring the balance to another interest-free balance transfer card.
Imagine you transfer $5,000 to a new credit card with 0% p.a. interest on balance transfers for 12 months, reverting to 19.99% p.a.
You calculate that you need to pay off $416.67 every month for 12 months to clear the debt within the introductory period.
Then life happens and you reduce how much you pay each month.
By the end of the 12 months you've paid off $4,000 and have a balance of $1,000 left. That's good going, but the revert rate kicks in and you are charged around $16 of interest.
Is the revert rate the same for all credit cards?
No, the revert rate varies between credit card issuers and may even vary between different cards from the same issuer.