The Ultimate Guide to Balance Transfers

Balance transfers are an important feature of many Australian credit cards, allowing cardholders to transfer their debts and repay them at a lower rate of interest. Credit card providers have devised a range of special offers including beneficial introductory deals to attract new customers to their products. Balance transfers provide the opportunity to repay debts at a lower rate, improve your finances and credit, and possibly save a large sum of money. This article outlines the principle features of balance transfer credit cards and the different types of offer available. By familiarising yourself with how balance transfers work and what features to consider and compare you can find the best deal and make the most savings.

What is a Balance Transfer?

Many credit cards available from Australian banks feature the option of a balance transfer, which is the process of transferring the balance of an existing credit card account or other debt to a new card from a different credit card provider. In order to generate new custom, banks present a variety of attractive offers on new balance transfers such as 0% interest rates on the balance for an introductory period; low interest rates over an extended period; 0% transfer and purchase rate credit cards; and, occasionally, ‘for life’ offers, which feature a fixed interest rate for the entire duration of your balance’s life.

The banks’ intention is to attract new customers by offering tempting deals on balance transfers; because of this they only accept balance transfers from other financial institutions. If customers could make balance transfers from one credit card to another from the same provider, the company would lose out on the profit from interest charged on their cards, which, of course, is how they make their money.

The benefits of balance transfers for the customer is the opportunity to repay the balance on their credit cards at a lower interest rate, so saving money, potentially a great deal of money, over the duration of the repayment. There is no balance transfer fee charged in Australia, so the customer is left to choose from the various rates and periods available when selecting a balance transfer deal. Important features to take into consideration when comparing balance transfer credit cards include the balance transfer interest rate, the length of the introductory period, how the deal changes when that period expires and other clauses in the terms and conditions relating to balance transfers. Customers looking for a balance transfer should also examine other card features such as purchase and cash advance rates, annual fees, charges, rewards programs and other benefits to find the credit card that best suits their finances and lifestyle.

Who are Balance Transfers for?

Balance transfers are designed for people who have a balance on an existing credit card or another debt, and want to move the balance to a new card and take advantage of repaying the debt at a lower interest rate.

Why Should You do a Balance Transfer?

It’s all about saving money. If you have credit card debts and feel you are paying too much interest, a balance transfer provides the opportunity to make repayments at a lower rate, giving you a chance to improve the health of your finances. Balance transfer credit cards that feature a low, or even 0% interest rate for an introductory period allow you to repay you debts without spending so much money on the interest. Over the duration of repaying your balance you actually pay less in total, so save money.

Ideally, you should clear your balance during the introductory period to take advantage of the offer. When the period expires your balance will attract interest at the standard purchase or cash advance rate (the rate can revert to either and is usually disclosed in the terms and conditions of the offer). If you think you are be able to clear the balance within the allocated interest-free period, a 0% balance transfer credit card could be a great choice for you. If you need longer to repay your debts a low interest rate balance transfer with an extended period could be a better option. If you want the option to repay your balance at a fixed-rate for the entire duration of the balance, a for life balance transfer may be the best choice.

Where do You Transfer to?

When you make a balance transfer you are moving the debt from one credit card or to another from a different provider. This can either be transferring the balance from an existing card to a new card from different company, or moving a balance from another company to your existing card. When moving your debts around from one card to another in this way, you should always make sure that with the new deal offers a lower interest rate, so you save money and enjoy the best benefits of the balance transfer.

When Can You do a Balance Transfer?

This varies between different credit cards, so it is important to study the terms and conditions of any deal you may be considering. Generally, you can apply for a balance transfer when you have opened a new credit card account. Some credit cards have an expiry time on the option to apply for balance transfers, so you may have up to three months from receiving a new card to request a transfer. When the option expires you can no longer take advantage of the deal.

Other credit cards have an ongoing option to make balance transfers, so you can move debts to your existing card as required. It may also be possible to transfer balances from multiple debts, so, providing you meet the application requirements, you can transfer balances when and as often as you like. Always familiarise yourself with all the small print relating to balance transfer deals before applying.

How to Transfer a Balance

You can make a balance transfer by completing an online application or by contacting your card provider by telephone. If you meet the transfer requirements and your application is successful, the bank takes care of all the technicalities of transferring the balance. You should request and check a final statement from the company that previously held your account to make sure the balance has been transferred. Keeping your old credit card active or closing the account is then up to you, although you should be aware that your choice may affect your credit score.

0% Balance Transfer Offers

0% balance transfer credit cards offer the chance to repay your balance for a short-term interest-free period. This means you can settle your debts without the costs of paying interest. The 0% offer is only be available for a limited introductory period, typically six to nine months. When the introductory period expires the interest rate on your repayments increases, usually to the credit card’s standard cash or purchase rate.

This type of deal is great if you are sure that you are be able to clear the balance within the limited introductory period. If you have existing debts but know you are going to have extra income in the next few months or just want to use the amount saved by not paying any interest, you can really take advantage of the period to clear up these debts without paying any interest. If you are uncertain that you are be able to clear the debt in the allocated time then this type of deal probably is not suitable for you, because when the offer ends you will be back to paying higher interest accrued on the ongoing debt.

0% Balance Transfer and Purchase Rate Offers

While relatively uncommon in Australia, some credit cards offer interest-free introductory periods on both balance transfers and purchases. This means you can transfer balances to improve your finances and use your card for everyday purchases with 0% interest. You should be aware that the introductory periods are sometimes different in length for balance transfers and purchases on the same card, and you should also examine how the deal changes at the end of these periods.

Low Interest Rate Balance Transfer Offers

Low interest rate balance transfer deals give you a longer introductory period than 0% rate offers, but you are charged a small amount of interest on your repayments. Typically, you will be charged 1 to 5% interest on your balance for an introductory period, which usually lasts for anything from 6 to 18 months. This type of deal is a good choice if you need a little longer to clear your debts, or if your balance is a relatively small and manageable amount.

As with other balance transfer offers with an introductory period, once the low interest period is over the rate reverts to a much higher level, usually the credit card’s standard cash or purchase rate. Before applying for a transfer, always check the terms and conditions so you know exactly how much interest you pay on the balance, the length of the introductory period and what happens when it ends.

Balance Transfer for Life Offers

A ‘for life’ balance transfer deal offers a fixed interest rate on balances transferred to your card at any time for the entire duration of repayment. While this type of deal attracts a higher interest rate than balance transfers with introductory offers, it does give you the freedom to take your time clearing the balance and build your budget around it. The higher rate of interest means the balance will cost you money over the course of repayment, but, as long as the rate is less than you were originally paying on the debt, it provides savings in the long term.

How do I Compare and Select a Balance Transfer Offer?

The Australian market for balance transfer credit cards is highly competitive as different companies attempt to lure new customers they present a variety of attractive deals. Choosing the best deal can be quite a daunting prospect, but by knowing exactly what type of card you are looking for and what features to compare you can find the deal that saves you the most money.

Firstly, you should work out how much your existing balance is, how much you will transfer, how much you can afford to repay each month and how long it will take you to clear the debt. If you are certain that you can repay the balance in a short amount of time, a balance transfer with a 0% interest rate for the introductory period could be a great option. If you would like to use your new card for the balance transfer and for everyday transactions, look for credit cards with an introductory 0% balance transfer and purchase rate. If you need longer to repay, then you could select a low interest rate offer with an extended introductory period. If you want to make payments at a fixed rate for the entire life of the balance you may want to consider for life balance transfer offers.

Once you know what type of card you are looking for you can start comparing specific deals to find the one that offers the best savings. When comparing balance transfer credit cards there are a number of key features to take into consideration:

• If there is an introductory offer period, how long does it last?
• What is the interest rate on the balance transfer, both during the introductory period and after it expires?
• Is there an introductory rate on balance transfers and also on purchases?
• Are there any late fees and over-the-limit fees, and do any penalties alter the balance transfer?
• Is there an annual fee for the credit card? If so, how much does it cost?
• What are the card’s other fees, rates, charges and features?
• Does the card provide access to any rewards schemes? If so, does it cost to be a member?
• Are there any clauses in the terms and conditions preventing transferring the balance when the introductory period ends?

When you have found the best deal you can complete an online application. If you are successfully approved, you should carefully and effectively budget to make sure you keep up to date with repayments throughout the balance’s life. It is possible that you can enjoy the low interest rate of an introductory period and then move your debt with another balance transfer when this period expires, but you should closely study the credit card’s terms and conditions before considering this strategy.

Used wisely, balance transfers are a great way to take control of your finances, manage your debts and, in the long term, save money.