Balance transfer credit cards

Want to know more about what a balance transfer credit card is and how it works? Here's what you need to know.

What is a balance transfer credit card?

A balance transfer is when one bank pays off the outstanding debt at your old bank and transfers it to a new account with them. Typically, banks offer promotional deals with low interest rates for a period of time to attract new customers. The promotional offer can save a significant amount of money, which many people use to repay their debt faster.

A credit card balance transfer occurs when an amount of debt is transferred from an existing credit card, charge card, or store card to another card held by the same cardholder. In theory, most Australian credit cards are balance transfer credit cards, although some cards specifically exclude a balance transfer option. Where balance transfers are allowed, in the absence of an introductory interest rate offer the transferred balance immediately begins to incur interest charges at the card’s purchases or cash advance interest rate.

Most references to a balance transfer credit card assume that the card receiving the transferred balance has a special introductory offer of a zero or very low interest rate on the transferred balance for a specified period, usually between six and 24 months, occasionally longer. On this page, the term ‘balance transfer credit card’ refers to cards with that type of introductory offer.

What are credit card balance transfers for?

Many people use a balance transfer card to consolidate their debts, particularly high-interest debt. If you choose a card which allows you to make a balance transfer from multiple credit or store cards (and most do), you can consolidate your debts into one easily manageable location and also enjoy a break from interest charges. This should allow you to make larger repayments of your debt, since the repayments are not being eaten up by interest charges.

Bear in mind that the total of your transferred balances will normally need to be no greater than 70-80% of the credit limit on your new card, and that American Express credit cards have a maximum transfer amount of $10,000.

How to do a balance transfer

Transferring credit card balances is quite a simple process. If credit card balance transfers are new to you and you aren't sure how they work, here's a step-by-step guide to explain it.

1. Compare offers and pick a card. At any given time, many of Australia's main banks will have a balance transfer offer. You can compare many of them in the table above. Note that you cannot balance transfer between cards with the same bank.
2. Check you are eligible. Make sure you earn enough, have a good enough credit score, and meet the minimum criteria.
3. Apply. This is when you'll provide details on the balance transfer. You'll also need your ID. The bank may also require some additional proof of income such as a bank statement or recent payslip. The fastest and most convenient way to apply is online.
4. Activate your new card. Some banks will not carry out the balance transfer until your card has been activated.
5. Decide what to do with your old card. You don't have to close old cards, but it can save on annual fees and helps you from overspending.

What is the best balance transfer credit card?

There is no single "best" balance transfer credit card that will suit everybody's individual financial circumstances. These are the characteristics of a good balance transfer credit card, which you can compare to find the best balance transfer credit card for your needs.

• A low interest rate on balance transfers. The obvious attraction of a balance transfer card is that it allows you to save a large amount of money by avoiding high interest charges on existing credit card debt for a prolonged period. This is particularly beneficial if the debt is sitting on a card with an interest rate of 20% p.a. or more, before being transferred. Most balance transfer credit cards in Australia have a 0% p.a. introductory rate.
• A long introductory period. The basic rule of thumb is that the longer the introductory period is, the better. When combined with a low interest rate, you can use the introductory period to save more money and get out of debt.
• A low or no balance transfer fee. Some balance transfer offers come with a fee attached, a fee payable upfront as a credit establishment or processing fee. If a fee is charged, it is typically 1% or 2% of the amount being transferred. So if you’re transferring a balance of, say, $10,000, and the balance transfer fee is 1%, you’ll pay a $100 fee. Learn more about how balance transfer fees work.
• A low revert rate. It’s a good idea to use the interest-free period on your balance transfer to pay off as much of your debt as you possibly can. That’s because you’ll start paying interest on any remaining balance, at the revert interest rate, as soon as the offer period expires. The revert interest rate will be either the card’s ongoing purchases interest rate or the even higher cash advance interest rate.
• A balance transfer limit that's high enough for you. It is not possible to balance transfer any more than your new card's credit limit. Most banks also have a limit for how much of the credit limit can be used specifically for balance transfers, known as the balance transfer limit, which can range from 70 - 100%.
• Support for your preferred transfer. Due to complexities with banking relationships, it may not be possible to transfer between the banks you prefer. Check that the card you want to apply for can balance transfer from your existing card.
• Ability to transfer non-credit card debt. Some credit card providers, including Citi, Coles, Qantas Money and Virgin Money, allow personal loan debt as well as credit, charge, and store card debt to be transferred to a balance transfer credit card. This allows you to make your debt consolidation more complete.

Balance transfers for existing customers

If you have multiple credit cards already, it may be possible to transfer a balance from one existing card to another. However, interest rates on existing customer balance transfers do not compare favourably with those for new customers (such as those compared in the table above).

Although you probably won't get as low interest rates, one of the major benefits of an existing customer balance transfer is not having to apply for another card, for which you may be rejected anyway, and the potential effect that may have on your credit score.

The pros and cons of balance transfer credit cards

A balance transfer card can reduce interest, save money, and make it easier to get out of debt. However, there are benefits and drawbacks to be aware of.

Pros

• Pay less interest and save money. You can use a credit card balance transfer to reduce or eliminate interest, which means paying less each month during the introductory period.
• Free up money that can be used to get out of debt. With less money being spent on interest, you can increase what you repay to pay off the balance owed faster.
• Simplify your finances. While it's often overlooked, the ability to combine debt from several cards onto a single card with a low rate not only makes it cheaper, but also easier and less stressful to manage.

Cons

• The balance transfer fee. If charged, this one-off fee means having to pay around 2 - 3% of the amount being transferred. That may not matter much for small balance transfers, but if you are transferring a lot, it can add up.
• High interest after the introductory period ends. When the introductory period is over, any balance left will attract interest at the purchase or cash advance rate.
• Your new card's credit limit may not be enough to transfer everything across. Furthermore, you won't know what that credit limit is before applying.
• 0% introductory offers are for new customers only.
• You may use the card to spend with. Doing so means you may end up with more debt.

Getting the most from a credit card balance transfer

Once you get an interest-free balance transfer card, there are a few things to do in order to maximise its benefits.

Things to do

• Get the balance transfer offer. If you did not request a balance transfer during the application, some cards allow you to request it after approval. However, if this is an option, it's usually for a limited period after approval.
• Use the interest-free intro period to pay off debt. Unlike a loan with fixed monthly repayments, you only have to make the minimum monthly repayment. Calculate what to pay each month so that the balance has been paid off before the introductory offer ends (our comparison table includes a calculator that does this).
• Don't spend on your new card. Do what you can to be disciplined with regards new purchases. Use the balance transfer card and it's interest-free offer to get out of debt rather than as a reprieve.

Things not to do

• Avoid applying for more than one card around the same time. Doing this can have a negative impact on your credit score since it can appear irresponsible. If it does affect your report, it can take some time for it to recover and may make it more difficult to get approved in future.
• Do not make minimum repayments only. This is one of the worst things you can do with your credit card since it means you'll carry a for longer and pay more interest.
• Don't spend on your old card. If you choose to keep your old card, avoid spending on it.

After the balance transfer offer ends

Once the balance transfer period has expired, your options depend on what balance remains.

If you've repaid the balance in full

• You're out of debt. You'll have more money left over each month, which you can use to build your wealth.
• You can the keep the card. If you don't mind paying the annual fee and won't start spending on it again, you could keep it.
• Or close it. If you want to avoid debt, then you can close the account and make additional savings because there'll be no annual fee to pay.

If you still have a balance

• The revert rate begins. Any debt that was transferred and has not been repaid will incur interest at the purchase or cash advance rate.
• You can do another balance transfer if you need to. If you still have a lot left to repay, then you could consider transferring to another card with a different bank.