What is a credit card balance transfer?

By   |   Verified by David Boyd   |   Updated 28th September 2021

What is a credit card balance transfer?

Balance transfer credit cards are just like other credit cards, except for one standout feature. Their defining feature is the option to transfer to them the balance you owe on another credit card (or cards), or possibly some other types of debt. Typically, a balance transfer credit card may come with either 0% interest or a special discounted low rate for a given period.

Extended time to pay off debt, interest free

You do not automatically get rid of your credit card debt with a balance transfer credit card. All it does is buy you some extra time to pay off your debt, avoiding the penalty rates of interest and late fees you may be getting charged on an existing credit card.

Why should I get a balance transfer credit card?

If you have a lot of credit card debt and keep getting charged high interest and penalty fees, a balance transfer credit card may help. But it will only work if you are serious about bringing down or fully paying off your credit card balance. Since there is a low or zero interest rate on the new credit card for a fixed period, if you are confident you can pay off that balance in that time – usually between six and 30 months – you can save a lot of money.

When you should not go for a balance transfer credit card

If your spending is out of control and you are still spending money on non-essentials despite high levels of debt, and are not committed to paying off debt or controlling spending, a balance transfer will only buy you time. You may be tempted to keep your old credit card, with a balance temporarily reduced to zero, and max it out again.

If this is the case, getting a balance transfer may not be the best idea because it adds another credit card to your debt portfolio and escalates your problem further with more temptations to spend.

No interest-free days on purchases

Most balance transfer credit cards – with only one or two exceptions – will not allow you to make interest-free purchases while you have an unpaid balance transfer debt. That is, you will forfeit the normal 44 or 55 interest-free days until the debt is fully repaid, so you will not be able to use the new card for purchases without paying interest from each transaction date until the purchase is paid for.

However, some balance transfer offers are combined with an introductory interest-free period on purchases. This means that you can also use the card for purchases for a period – typically between six and 12 months – and only make minimum repayments on the purchases balance. But there are two dangers to be aware of:

  • The introductory 0% interest on purchases period may be shorter than the introductory 0% interest on balance transfers period, so take note of both expiry dates;
  • Racking up a purchases debt and making only minimum repayments, even though you aren’t paying interest charges, is just another invitation to get into debt that you will struggle to repay.

What to look for in balance transfer credit card comparisons

Balance transfer credit cards are not all the same. They come with a variety of features that will affect their appeal, depending on your own financial situation. You therefore need to compare these features before making your choice:

  • How long is the introductory interest rate period?
  • Is there an upfront balance transfer fee (usually 1%-2% of the transferred amount) to pay?
  • Is there an accompanying introductory interest rate on purchases?
  • If there is no introductory rate on purchases, will you forfeit interest-free days on purchases until the transferred debt is repaid?
  • What is the revert interest rate (the interest rate you’ll pay on any remaining transferred debt once the introductory period expires)? Note that this revert interest rate is often the very high rate applied to cash advances.
  • Are there any complimentary benefits attached to the card, such as rewards points or complimentary travel insurance? (You will probably not be able to benefit from these unless or until you can make interest-free purchases.)

Alternatives to a balance transfer credit card

Instead of applying for a balance transfer credit card, there are other ways to structure repayment of credit card debt that has got out of control:

  • Debt consolidation loan. A debt consolidation loan is a personal loan specifically designed to amalgamate existing debts – credit cards, store cards and other personal loans – into one manageable loan repayment. Although you may be granted a longer time to repay (typically up to three years) than you would with a balance transfer, you will pay interest for the entire loan term. There is no introductory interest-free period.
  • Personal loan. You don’t need to apply for a specific debt consolidation loan. You could just apply for a standard personal loan and use the cash to pay off all your existing debts, leaving you with a single loan to manage and repay.
  • Home loan refinance. If you have equity in your home (that is, the market value is considerably higher than the amount remaining on your mortgage) you could refinance your home loan for a higher amount in order to release cash to repay your other debts. The main advantage here is that home loan interest rates are usually a lot lower than personal loan rates, but you will need to recognise that you are converting short-term debt into long-term debt, and may end up paying more interest during the life of the loan.

Pros and cons

Pros

  • Low or no interest during the introductory period.
  • Saves money if you can pay off debt within the low-interest or no-interest period.
  • Buys you time to pay off your debts.
  • Gives you a reprieve from penalty interest rates.
  • Helps with debt consolidation if you have multiple cards and personal loans.
  • Can improve your credit score if you use the introductory period to pay down your debt. More here.

Cons

  • You may need to pay a balance transfer fee.
  • Low or zero interest is valid only for a while.
  • Credit card issuer may need you to have a good credit rating.
  • You are very likely to forfeit interest-free days on purchases unless there is an accompanying introductory interest rate on purchases.
  • Your new credit balance and bank policy determines how much debt can be transferred. So you may end up with an additional credit card (and fees on both) and double the temptation.
  • You may be tempted to spend on your – mostly cleared but still open – old credit card.
  • The revert interest rate will probably be high.

FAQs

Can I still use my old credit card?

Yes. Your new card issuer will organise the transfer of your balance from your old card, but will not close the account for you. That is up to you. It would be a good idea to close your old credit card account, however, if you cannot trust yourself to pay off any new purchases you make at the end of each month.

What debts can be transferred to balance transfer credit cards?

Mostly only credit card and store card balances, although some credit card providers, including Citi, Coles, Qantas Money, and Virgin Money, allow personal loan debt as well as credit card debt to be transferred to a balance transfer credit card. For more information, refer to our guide about what you can balance transfer to a credit card.

Can I get a balance transfer credit card with bad credit?

It’s not impossible, but far more difficult than it would be if you had a good credit score. You can check your credit score free of charge to find out what your chances are likely to be.

Do I need to make minimum repayments during a balance transfer interest-free period?

Yes. You will still have to make a minimum payment on your card each month. But considering that you are transferring your balances to the new card because you want an easier path to pay off debt, you should be paying off a lot more than the minimum balance every month. Otherwise, at the end of the zero-interest period you may have not one but two credit cards to pay off and a bigger debt to deal with.

Is it true I can actually avoid paying interest on my credit card?

Yes, it is possible to avoid paying any interest on your credit card after you pay off your entire transferred balance and commit to paying off all future purchases within the 44 or 55 days interest-free period (i.e. repay the full balance at the end of each month).

Are there minimum and maximum limits for balance transfer credit cards?

This depends on the card issuer.

  • Minimum amounts: Some banks may allow you to transfer as little as $100. Other card issuers may have a minimum limit of at least $500.
  • Maximum amounts: Usually, the maximum amount you can transfer is given as a percentage of your credit limit. Typically, you can expect a new card issuer to let you transfer up to 80%-95% of your new credit limit.

Is it possible to get a balance transfer card from the same bank?

Very rarely. The whole idea of balance transfer offers is for the credit card company to get new customers who are with other card issuers. However, they may offer an interest-free balance transfer to existing customers with a high credit rating, if they suspect that they have alternative credit cards with other banks.

Can I transfer balances from any credit card to any other credit card with a different card issuer?

In theory, yes. But in practice, banks and card issuers have limits on which banks and card issuer balances they are willing to accept, especially if your old card and potential new card are issued by banks within the same financial group. You need to check this with the card issuer.