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Credit card debt can be a huge problem in Australia, with a growing number of cardholders using their cards to cover the rising cost of living.
Data from the Reserve Bank of Australia shows that as a nation, we collectively have 13,168,856 credit cards circulating in Australia, adding up to a national debt accruing interest of $17.9 billion.
The average balance per credit card is $2887, while the number of personal transactions and charge cards for the month of July sitting at a whopping 272 million transactions.
However you look at it, Australians love their plastic—some more than others. Enter balance transfer credit cards.
How Does a Balance Transfer Credit Card Work?
A credit card balance transfer refers to moving the amount you owe (your balance) to another credit card.
A balance transfer allows you to move debt from one account to another. If you’re carrying high-interest debt, it can be worth considering this option as a way to save on interest charges, with some lenders offering 0% interest for an introductory period.
It works like this: apply for a new card with a different lender, and initiate a balance transfer, by paying down the balance.
The new lower rate is usually offered for a fixed amount of time in a bid for the lender to win new business, before rising to a more standard rate.
Transfers of this kind are likely to be more common given that credit is becoming more expensive in Australia as interest rates rise, with interest rates varying between lenders. It can be an option to get your debt sorted.
But there are limitations. While some lenders offer a balance transfer, others don’t want your debt.
Here’s a step-by-step approach on how to do it:
- Start by looking around for a card that meets your needs.
- Read the terms and conditions.
- Apply to move your debt across to the new lender.
- Your new credit card provider will move the balance on your behalf.
- Close your old account.
- Set up a regular direct debit to keep paying off your debt.
- Be aware of when the introductory period ends and when the lender will revert to the higher interest rate period.
Also bear in mind that if you’re struggling to get the balance of your credit card under control, a balance transfer may not be the right option for you, warns Moneysmart. Instead, you may be better off looking at other options.
If you’re having trouble with your debt, you can access free financial advice with the National Debt Helpline on 1800 007 007.
How to Compare Balance Transfer Credit Cards
Once the introductory interest-free period ends, the new credit card could be more expensive over the long term, so compare the fees.
Keep an eye out for lenders that offer 0% balance transfer with no upfront or annual fees, which can represent a better deal.
Of course, the goal of a balance transfer is to save money, so look out for a card that helps you to reduce your costs.
If you’re considering applying to transfer your balance to another lender, it’s best to try and pay off as much debt as possible before making the switch. View this as an opportunity to get on top of your debt, and make the transition a line in the sand, when you will move forward with better habits to pay off the debt with the new lender.
What to compare:
- Length of offer: The longer the term of the offer, the more time you will have to pay off your debt.
- Fees and charges: These can add up, so read the fine print.
- Check the criteria: If you’ve been carrying debt for a long time, and it’s growing every month, bear in mind that you may not be approved.
- Interest rate: Many balance transfer credit cards offer 0% interest for a period, before moving back up to the usual fee. If you haven’t paid off your balance within that time, you will be charged higher interest, so use the move as a motivation to clear your debt.
What are the Pros of Balance Transfer Credit Cards?
- Save on interest: Transferring your existing balance to a new lender means you can access low or 0% interest for a period of time.
- Pay off debt quicker: Not having to pay interest means you should, in theory, be able to reduce your debt faster.
- Roll debt into one: This can enable you to roll your debt into one place, and cover the repayments with one monthly payment.
- Access bonuses: Some lenders offer bonuses like insurance or rewards, which could prove valuable.
What are the Cons of Balance Transfer Credit Cards?
- Fees: Nothing is free, and the fees could cost you more in the long run, so make sure you read the fine print. There will also be an annual fee, which can vary from around $50 to $150.
- Higher rates: After the introductory period ends, the lender will move to the higher rate. If you don’t realise this, you could end up paying more than you bargained for in the long run.
- Transfer refusal: There is a chance that the lender will refuse to take you on, depending on what you owe. Be prepared for that possibility.
- Credit score: Applying for a new credit card shows up on your credit report, so if your score isn’t good, you may be knocked back from this option.
FAQs
Which balance transfer credit card is the best?
There is no one ‘best’ card as you need to match your circumstances (and your credit report) with willing lenders. However, as a general rule, look out for the 0% interest cards that offer this rate for 24-36 months, with low fees.
Are 0% Balance Cards possible?
Yes, they are in the market, and may help you get on top of your debt.
Are balance transfer credit cards good?
Yes, they can be a good option, depending on how much debt you’re carrying and how much self-control you have in not using the card past the zero-interest period. Make sure you read the fine print.
Are there balance transfer cards with no fees?
Yes, there are a number of these offered by some of the biggest lenders in Australia. Do your homework.
Can I transfer to another card within the same bank?
It’s unlikely. Banks don’t usually allow you to transfer debt from one card to another, meaning you’re probably going to need to move to another lender.
Can I transfer more than one balance?
Depending on how much debt you’re carrying across your credit cards, it is possible that you can roll your balance into one lender and still access a low or 0% interest rate.
