Balance Transfer Credit Cards

What is a Balance Transfer?

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; many people use it repay their debt faster. See our FAQ below for questions about how balance transfers work, how they affect your credit score and more.

How Much Can You Save?

Say you currently have a balance of $3,000 – about average for Australia, according to research by the RBA – that is charged an interest rate of 15% per annum. This means approximately 1.25% in interest per month, which works out to be $37.50. If you were to switch to a card with 0% for 6 months, you would save around $225.

Or, let’s imagine you have a balance of $10,000 and paying 15% p.a., which works out to an interest bill of $125 per month. Switching to one of the long-term balance transfer deals offering 2% for the year would reduce your total interest payments on a $10,000 balance to $17 per month, saving you around $1,250 during the first year.

To see how this would affect your debt repayment, you can use one of the calculators below (but remember to account for transfer fees as well as annual fees):

• Balance transfer calculator – calculate how much money you can save by switching to a new credit card with a balance transfer offer
• Debt repayment calculator – calculate how long it will take to be debt-free

What You Should Look For

How do you get the best deal going? Start by asking these questions when comparing offers.

Q: Are there any fees? A: Unlike in the United Kingdom or United States, in Australia balance transfer fees are rarely charged. Banks sometimes charge an administrative fee, which can, depending on the size of your debt, significantly reduce your overall amount saved. Without a balance transfer fee, you are free to switch accounts as and when it suits you without having to worry about paying the bank for the service.

Q: What are typical promotional rates on balance transfers? A: The majority of banks offer new customers a balance transfer deal in the region of 1-3% for a period of 6-18 months. The 0% rate offers are the exception rather than the rule in Australia. Balance-transfer-for-life offers are few and far between.

Q: When does the debt need to be transferred? A: Most people take immediate advantage of a balance transfer offer and include the details of their debts in their application. However, banks may give you up to 3 months leeway. Failing to use the promotional offer when applying for a new card means your outstanding balance, which will still be on your old card, will be charged the standard interest rate. Therefore, you would unnecessarily be paying interest instead of saving money.

Types of Balance Transfers

In addition to the table above, you can compare credit cards which offer balance transfers with:

• 0% for 6 months – pay no interest on transferred balances for the first 6 months
• 0% on balance transfers & purchases – no interest on both balance transfers and purchases on the new card
• 12 months low interest – introductory low interest rates on transfers for a year
• An instant decision on your application – a collection of cards with an introductory balance transfer offer and a decision on your application in 60 seconds or less
• Higher credit limits – ideal if you need to consolidate multiple balances onto one single card with a low interest rate
• More than 12 months low interest – secure a low interest rate on balances transferred for the long term
• No annual fee – avoid annual fees while getting a low interest rate
• Rewards – a curated collection of cards that combine low rates with the ability to earn rewards points

Balance Transfers to Specific Banks

Select the bank you’d like to switch to from the following:

• ANZ
• Bankwest
• Citibank
• NAB
• St George

Balance Transfers: Frequently Asked Questions

Q: How do I initiate a balance transfer? A: You have two choices when switching to a new card. Either you fill in the details of the balance you would like to transfer on the application form, or you wait until the account has been opened and then initiate the process. You’ll typically get the same interest rate regardless, but you should be wary about delaying because most banks insist that you start the balance transfer within a set window of time if you want to get the introductory deal. Failing to do so may mean that you’ll have to pay a higher rate of interest on any debt transferred across to your new account.

Q: How long does it take to clear? A: Assuming that your application has been successful, your balance will usually be transferred inside two weeks.

Q: Can the outstanding debt of store cards be transferred? A: Yes, you can transfer what you owe on your store card (e.g. your David Jones credit card).

Q: How does a balance transfer impact my credit score? A: In short, it depends. If you apply for multiple credit cards in a short period of time, and want to consolidate a large outstanding debt, your credit score will be lowered. This is further compounded if some of your applications have been declined and you continue to apply for more offers. It is best to spread out your applications for new accounts as much as you can while keeping your existing accounts in good order by not missing payments or spending too much.

Q: What about my credit limit? A: Your credit limit, or the amount of money you are allowed to borrow, does come into play. If you intend to consolidate debt from multiple accounts onto a single card using a promotional offer, you may not be able to transfer the entire outstanding amount because your credit limit is not high enough. Should this happen to you, you can still transfer as much of your outstanding balance as possible to take advantage of the low interest rate and work towards paying it off. If you manage to pay off some of what you owe on your new card and essentially free up some space on it, you could move some of the amount still owed from your old card to your new card, but most likely at a rate that is higher than the promotional rate. As long as you space out your applications adequately, you could apply for another credit card and move the rest of your outstanding debt to it.

Q: Should I transfer a balance to a card with an annual fee? A: Assuming that you want to apply for a balance transfer credit card and use the low interest rate to pay back your debt faster, you’ll also want to avoid other fees as much as possible. An annual fee is one such charge you would rather avoid. However, if you are planning to move a very large balance at a low rate, the impact of the annual fee is diminished because of the amount of money saved per month on interest alone. Conversely, if you are moving a relatively small debt, the annual fee may practically wipe out any potential savings. Ideally, you are looking for a really cheap and prolonged balance transfer deal without an annual fee.

Q: In what order are payments allocated? A: Many people don’t realise that a bank doesn’t treat the amount owed as one single account. In other words, if you have transferred a balance at a low interest rate and use your new card to spend with, the bank will allocate payments to the cheapest debt first. So if you are not disciplined in your spending, you’ll not only be adding to your outstanding debt, but you won’t even be paying off the amount of money that was transferred. If you want to get rid of your debt, then don’t use your new balance transfer card to buy stuff!

However, there is an exception to this rule. Banks are now offering cards with a combined low interest rate on both balance transfers and purchases. Therefore, you would pay the same level of interest on any new purchases as you would on the amount of money that was transferred across. Still, the best thing to do is to avoid spending on your card until you are no longer in debt and can afford to pay off your monthly spend in full.

Q: Is it OK to use a balance transfer credit card to buy things with? A: This really depends on your financial situation. If you want to open a new account in order to pay less interest and use the money saved to pay off your debt, then no, it’s best not to spend with the card. If your new card has a combined promotional interest rate on balance transfers and purchases, and you can afford to pay for what you buy plus make a repayment on the debt, then you can use the card to buy with. However, in general it’s best to live within your means, pay off your debt first and only buy things with your credit card that you can pay off fully each month.

Q: Can you do an intra-bank balance transfer? A: Even if you have been with your bank for years, you’ll have to transfer your balance to an account with a different bank in order to take advantage of the introductory offer on interest. Most banks in Australia do not permit their customers to transfer a balance from one account held with them to another. This may sound like a lot of hassle, but in reality it isn’t, especially because most banks do not charge a fee.

Q: Can I just pay the minimum monthly payments on the balance transfer? A: Yes – but, given the debt-busting potential of a well managed balance transfer, it is far from ideal. If you’ve switched to a new card to take advantage of the low introductory interest rate, try to pay back as much as you can afford each month while the interest rate is low. Once the rate reverts to the higher level, if you still have debt, you can transfer the balance to yet another card, with a better rate.