A credit card offering a zero per cent transfer deal means that you won’t pay any interest on the amount you transfer across from another credit card or loan. It’s an incentive offered by credit card providers to entice new customers to use their products.
There are a range of benefits for opting to ditch your old credit card in favour of a new one. A zero per cent balance transfer deal is one of them because it’s also a way to freeze the interest payable on what you owe for a set period of time.
Who offers balance transfers?
Balance transfers of zero per cent have become increasingly more popular. As a result, more and more credit providers offer this type of deal. The kind of debt that can be transferred to a credit card using this deal is broadening too.
Some financial institutions allow the balance of personal loans to be transferred to their credit card. Balance transfers are available on credit card products, which means you can shop around the various banks, credit unions and non-bank lending institutions to see who has the best deal.
How does a 0% balance transfer work?
A zero per cent balance transfer deal works this way. Let’s say you owe $11,000 on your current credit card and are paying 20 per cent on the balance. To get on top of your repayments, you apply for a new credit card offering a zero per cent balance transfer.
If your application is successful, your $11,000 debt gets transferred to the new credit card (and your old card is paid off). Your new credit card balance of $11,000 will not accrue any interest for the period of time outlined in the deal.
It’s worth exercising discipline during the zero per cent interest period on your carried balance. Once the interest-free period ends, most credit cards will revert back to the standard interest rate or even higher.
How do I do a balance transfer?
Transferring your balance from one credit card to another is a simple process.
Once you’ve completed a credit card application – and it’s successful – your new lender may pay out your old credit card balance without you needing to do anything. It’s common practice for credit providers offering this type of deal to manage the pay-out of your old credit card for you.
Do balance transfers involve fees?
As with most credit card products, the associated fees and charges are variable. Whether there are fees payable is dependent on the individual financial institution. So it’s worth paying attention to the terms and conditions for each zero per cent balance transfer deal you explore.
Some lenders charge a ‘balance transfer fee’ for the amount being carried across to the new credit card. This is usually charged as a percentage of the balance owing. You might also have to pay an annual fee for the type of credit card you choose.
The pros of 0% balance transfers
The most obvious benefit of a zero per cent balance transfer is the opportunity to tackle your credit card debt. Not paying interest on the carried balance for anywhere up to 24 months means that repayments could be fixed, making them easy to manage as part of your budget.
In addition to a zero per cent balance transfer, many credit cards offer incentives such as reward points, shopping discounts, cash back incentives, insurance discounts and more. As well as being able to easily manage your interest-free repayments, you can also enjoy some fringe benefits.
An overarching benefit is that this type of deal provides an incentive to change credit cards. By taking advantage of a balance transfer, you might find the new credit card has a lower interest rate for purchases and cash advances, more interest-free days and a low or no annual fee.
What are the alternatives to balance transfers?
The alternative to a balance transfer is another type of loan product or self-imposed austerity measures (if you have the self-control). A balance transfer is literally transferring debt from one credit product to another. Most commonly, it’s the transfer of debt between credit cards.
If your goal is to abolish credit card debt altogether, you may want to investigate what personal loans suit your situation. A personal loan usually offers a lower interest rate than credit cards, and gives you the choice of fixing the rate for the period of the loan.
Or, if you’re a home owner, you could explore a redraw option. This would let you ‘borrow’ from your mortgage to pay out your credit card. As with personal loans, home loan interest rates are generally lower than credit cards, so this could be a more economical solution if it’s available to you.
^The best balance transfer credit card for one peron may not be the best choice for the next person, as everyone has different financial circumstances and goals. Compare the different 0% balance transfer credit card options to work out which one may best suit your finances. If you're having trouble, consider contacting a qualified financial adviser for help.