Balance transfer credit cards are financial tools that allow individuals to transfer their outstanding balances from one credit card to another, usually at a lower interest rate. This can help individuals consolidate their debt and save money on interest payments.
"A balance transfer credit card can be used to consolidate a number of higher-interest debts onto a single card with a lower interest rate, typically 0% p.a. for a period of time that we call the introductory balance transfer period. During this time, money normally directed to interest payments can be used to pay down the balance instead. Usually there is a one-off balance transfer fee, which is typically a percentage of the amount being transferred (around 2-3% is common). Some offers may waive that fee. It's important to work out if a credit card balance transfer actually saves more money than the fee to do so, and, if it does, what the interest rate will be after the introductory balance transfer period ends."
David Boyd
CEO at Credit Card Compare
How balance transfer credit cards work
Balance transfer credit cards work by allowing you to move the balance from one credit card to another. This is often done to take advantage of a promotional low or 0% interest rate for a specified period. Balance transfer credit cards help you pay off your debt faster and save on interest charges.
When you transfer a balance to a new card, you will usually be charged a balance transfer fee. It is typically a percentage of the amount being transferred. It's important to check the terms and conditions of the new card to understand the fees and any limitations that may apply.
What to know before applying for a balance transfer credit card
Before applying for a balance transfer credit card, it's important to consider the following factors:
- Interest rates: Understand the promotional interest rate period and the revert rate charged after the promotional period ends.
- Fees: Be aware of any balance transfer fees, annual fees, or other charges associated with the card.
- Credit limit: Ensure the new card has a sufficient credit limit to accommodate the balance transfer amount.
- Credit score: Your credit score will play a significant role in determining the approval and terms of the balance transfer offer.
What to consider when choosing a balance transfer credit card
- Compare offers: Research and compare multiple balance transfer offers to find the best deal for your financial situation.
- Consider the length of the promotional period: Look for cards with longer promotional periods to maximize your savings on interest.
- Check for hidden fees: Read the fine print to understand all fees associated with the card, including balance transfer and annual fees.
- Evaluate the revert rate: Ensure you are comfortable with the revert interest rate that will apply after the promotional period ends.
"It's tempting to use a balance transfer offer to save money, but not actually pay off the balance owed. If you only make the minimum repayment each month, you're doing nothing to pay off the balance owed."
David Boyd
CEO at Credit Card Compare
Balance transfer benefits
Some benefits of using a balance transfer credit card include lower interest rates, debt consolidation, and savings on interest charges.
Save on interest
If you have a credit card balance of $5,000, with a purchase rate of 18%, and make $300 monthly payments, without any additional purchases, you will pay off your card in 20 months. However, you'll pay $796 in interest during that period.
By transferring your $5,000 to a balance transfer credit card offering 0% p.a. interest for 18 months, you can pay off your debt three months ahead and save on the almost $800 in interest.
Those carrying higher balances stand to save thousands with an interest-free balance transfer offer.
Pay off your credit card debt faster
You can pay off your debt faster when interest is not adding up month by month.
This is because your entire monthly payment goes towards paying off the principal amount. Paying more than the minimum repayment accelerates this.
Balance transfers can simplify your finances
Debt consolidation refers to taking out one facility to pay off a number of different balances. Consolidation makes debt management easier because you are less likely to lose track or miss payments. With an interest-free balance transfer offer, you can also reduce the total interest you end up paying.
They can reduce financial stress
Grappling with credit card debt can be very stressful, especially if you are struggling to keep up with repayments.
Transferring debt to a balance transfer card with low or no interest can help you relieve that stress and free up money to make progress towards getting out of debt.
May help improve your credit score
A balance transfer can lower your overall credit utilisation ratio, or the level (percentage) to which you are using your credit limit.
This matters because credit utilisation plays a role in determining your credit score.
Methodology for our balance transfer credit card comparison
When choosing what cards to include in our balance transfer credit card comparison table and its rank order, we considered the following attributes and their associated metadata.
- Annual fee initial year: The first year’s annual card fee amount. Lower is better.
- Annual fee ongoing: How much is charged each subsequent year to renew the card. Lower is better.
- Apple Pay enabled: Whether the card can be added to Apple Pay. The convenience of contactless payments is considered a benefit.
- Balance transfer offer: What the introductory balance transfer rate is and how long it lasts. Lower rates for longer periods are considered better.
- Balance transfer fee: How much it costs to do a balance transfer. Lower is better.
- Balance transfer from personal loan: If personal loan balances can also be transferred. Added flexibility in debt consolidation is considered better.
- Balance transfer limit: The maximum amount permitted to transfer to the new card. Higher limits provide more consolidation flexibility.
- Card type: Whether the card runs on American Express, Mastercard, Visa, or other network. Some credit card payment networks have better acceptance than others.
- Foreign exchange fee: How much the surcharge is when transacting while overseas or with an overseas online store. Lower is better.
- Interest-free period: The number of interest-free days from statement. Longer is better.
- Introductory purchase rate: If there is an introductory purchase rate offer. Lower interest rates are considered better.
- Late payment fee: If a fee is charged should the minimum repayment be made past the due date and how much it is. Lower is better.
- Maximum credit limit: The highest credit limit offered, if publicised by the bank.
- Minimum credit limit: The lowest credit limit offered, if publicised by the bank.
- Minimum income required: Minimum gross annual individual/household income to qualify. Lower thresholds increase eligibility.
- Purchase rate ongoing: The standard interest rate on purchases after any introductory periods end. Lower ongoing rates are considered better.
- Rewards program: Whether the card earns rewards (points, cashback, etc. per dollar spent), the flexibility of rewards, and their value.
- Samsung Pay enabled: If the card can be added to Samsung Pay. The convenience of contactless payments is considered a benefit.
- Sign-up bonus: Whether there is a sign-up bonus on offer, what the bonus comes as and its value, and qualifying criteria. A sign-up bonus is considered beneficial.
Our rankings may not reflect what matters most to you. Be sure to compare key rates, fees, and features against your own financial priorities before deciding.
