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What is a balance transfer credit card?

If you're an Australian cardholder struggling to pay off credit card debt, and need a little no-interest breathing room to get on top of it, a balance transfer card may offer a lifeline. 

A balance transfer involves moving a debt from your existing card provider to a new balance transfer credit card. It is a popular way to manage debt in Australia. 

The appeal of a balance transfer credit card is that it charges you zero percent interest on your transferred balance, but usually only for a limited time. 

Whether you're looking to stick with a big four bank (CommBank, Westpac, NAB or ANZ), switch to a competitor bank, such as Bankwest, Citi, or Virgin Money, or make the move to online-only banking, there are a range of credit card providers offering balance transfer cards.

How do balance transfer credit cards work?

A balance transfer credit card works by allowing a cardholder to transfer the debt of one card to another. The new card typically offers a zero per cent interest rate for a set period period to help the cardholder pay off the debt, which will then revert to a typically higher ongoing rate. If you are unable to pay off your balance over the no-interest time frame your balance will immediately begin accruing interest, potentially growing your debt further. 

Upon approval for your balance transfer card, your current card issuer will begin the process of transferring the agreed upon amount across to the new issuer. This process can take a number of days, even weeks, depending on your card issuers. You may also be charged a one-off balance transfer fee - typically around 1-3 per cent of the total balance being transferred. Not all credit card providers charge a balance transfer fee, so it’s worth comparing your options. 

How much can I transfer on a balance transfer card?

A balance transfer credit card may also come with a transfer limit, and this is generally impacted by your approved credit limit. Upon application, a card issuer will assess your income, credit history, expenses and more to help determine your maximum credit limit. Generally, the amount you can transfer from one credit card to another is 70-100 per cent of a balance transfer card’s approved credit limit.

For example, if you had a $4,000 credit card balance and a balance transfer card with a credit limit of $5,000 which allowed you to transfer 80% of your credit limit, you would be able to transfer your full, outstanding balance.

The pros of a balance transfer credit card

Balance transfers are not just useful for cardholders who can't manage debt, they can also be great for people wanting fringe benefits for their spending.

The perks and benefits of balance transfer credit cards differ for each card provider. This is why it's worth regularly using a credit card comparison tool to see if your current card stacks up against the competition.

Some of the bells and whistles you may find in a new card could include:

  • Rewards programs (typically found with rewards cards) that allow you to earn rewards points per dollar(s) spent on eligible purchases. These may be exchanged for goods and merchandise in a rewards program.
  • Frequent flyer programs that earn you frequent flyer points per dollar(s) spent.
  • Cash back offers for new applicants.
  • Store card affiliated rewards, such as gift cards or discounts for a specific retailer.
  • Bonus points on sign up, such as bonus Qantas points.
  • Visa, MasterCard or AMEX affiliated rewards.
  • Ongoing, low rates.
  • No account keeping fees.
  • Interest-free days.
  • Complimentary insurance, such as travel insurance.
  • Retail gift vouchers and more.

Case Study: Paying off debt with interest vs. using a balance transfer card

Jessica has a $5,000 debt on a credit card charging her 16 per cent interest. She can afford to pay $200 a month towards her debt. 

She wants to know how much she may save on interest by opting for a balance transfer as opposed to trying to pay off her existing debt on her current card.

She uses a credit card calculator to see that if she made ongoing $200 repayments on her existing credit card, it would take 2 years and 7 months to pay off her debt, with a total debt paid of $6,023.

However, if she opted for a balance transfer credit card and paid off her balance in full during the interest-free term, she would shave $1,023 in interest off of her final balance.

What you should know about credit card balance transfers

There are also some potential costs and risks associated with balance transfer cards.

  • 1. Balance transfer fees

There are a few potential fees new customers may be charged on your balance transfer card, including some standard card fees and some balance transfer-specific ones.

  • Standard purchase rate: This is the interest rate charged on any new purchases made with your balance transfer credit card. While your transferred debt from your existing credit card may not be charged interest for a set period of time, any new purchases will. This is why it's recommended you lock away your new card in a drawer, or even put it into the freezer, so you're not tempted to spend.
  • Annual fee: Your annual fee is charged to keep your card account open. This can range from $0 to $1,200.
  • Balance transfer fee: A fee charged by the new card provider on your balance transfer amount when you move the existing debt from your old card over to it. The fee is typically charged as a percentage of your balance, also known as the balance transfer rate (around 2 per cent).
  • Cash advance rate: If you were to use your balance transfer card to withdraw money, you may be charged a cash advance interest rate. These are typically higher than the purchase rate, so be wary of how this cost may impact your budget.
  • 2. Balance transfer period 

The amount of time you have to pay off your existing balance without being charged credit card interest is also called the balance transfer period. This balance transfer offer is typically a number of months, and can climb as high as two years. This will vary depending on the credit card providers own terms and conditions.

After a balance transfer credit card's interest free period has expired, the card will revert to its standard purchase rate, which is typically quite high. If you have not paid off your balance in full by the time the balance transfer period ends, the outstanding balance will begin accruing interest at the credit card's standard purchase rate. 

  • 3. Impacting your credit rating

Having an outstanding credit card balance that you're unable to meet repayments on can hurt your credit score. This is a risk cardholders face when they first get a credit card. If you switch to a balance transfer card and are still unable to get on top of your debt, you may hurt your credit rating. 

Further, if you don't review a credit card provider's eligibility criteria before you apply, you may be rejected. Having multiple card applications and being rejected can also hurt your credit rating. 

What types of balance transfer deals are available?

There are a range of zero per cent balance transfer cards from credit card providers on offer in Australia. Here are a few ways they can differ, and what you should keep in mind:

  • Short or long interest free period: the interest-free offer may range from as short as 6 months through to 12 months, 18 months and even 24 months.
  • No fees: the interest-free offer may also come with no ongoing fees, such as annual fees, for a set period of time, typically a year.
  • Interest free introductory cards: Sometimes referred to as 0% purchase cards. Instead of just charging zero per cent interest on your transferred balance, the card provider may offer an interest-free introductory period/promotional period on all purchases for a set period of time.

You may also come across debt consolidation personal loans as an alternative option for paying off your card balance. Lenders offer these loans for similar purposes - to help Aussies pay down their debt. Keep in mind that unlike balance transfer cards, debt consolidation loans charge an ongoing interest rate. They are generally better suited for those with multiple debts, such as a car loan and credit card debt, as you can consolidate these into one big debt with one lower interest rate.

How to do a balance transfer

While it may differ depending on your chosen card provider, here is generally the step-by-step process of how you perform a balance transfer:

  1. Compare balance transfer credit cards. The most important step is to first compare your card options to find one that suits your financial situation and budget. Take stock of potential fees, the length of the zero per cent period and whether you can afford to pay off your debt in that window. Use comparison tables and calculators to help you in this process.
  2. Apply for your new balance transfer credit card. Make sure your personal finances are in order and your credit report is in good shape to lower your risk of being rejected. The application process should only take a few minutes, but your approval may take one to ten days. Receiving your new balance transfer card can take up to two weeks so keep this time frame in mind when applying.  
  3. Check your transfer is completed. Once you’ve been approved, the balance transfer should be performed automatically. The provider may contact you to confirm your balance transfer details. When your balance has been transferred on to your new card, it should appear on your credit card statement.
  4. Close the old card account. A crucial step is to ensure you’ve closed your old credit card account to avoid accruing any more debt, whether through new purchases or ongoing fees. You will need to pay off your balance in full before closing the account. Keep this in mind if you could not transfer your full balance to the new card.

Now you can begin the process of paying off your existing credit card debt.

How long do I have to pay down my balance transfer?

The length of time you will need to pay down your balance transfer generally depends on your budgeting skills and financial situation.

Firstly, take stock of your finances. Look at your income, expenses, assets and any savings you have. If you’re serious about getting on top of your debt, you’ll need to be strict about what expenses you can lessen or cut out and how much of your income and savings you can put towards your debt on an ongoing basis.

For example, if you have a $2,000 credit card debt, and can afford to budget for $300 a month towards this debt, using simple math you’ll know that it would take around 7 months to pay off this debt in full. If you had to pay interest on this debt too, this time frame could increase. This is where balance transfers come in handy.

Next, when you compare balance transfer cards, you will see that each card issuer offers varying periods of time for their zero per cent interest windows. If you have a smaller debt, like the one mentioned above, you may be able to opt for a shorter balance transfer term (under 12 months). However, if you’re struggling with a large credit card debt, you may need to consider if a longer zero per cent balance transfer term would better suit your budget. Balance transfer terms may range as long as to two years or more.

Ultimately, the length of time you need to pay down your debt depends on your personal circumstances. You may also find that you’re unable to pay off your debt within your balance transfer term. This can have adverse impacts on your debt as the standard purchase rate of balance transfer cards is typically quite high, causing your debt to grow further. Try and work within your budget and financial situation when choosing a balance transfer term.

Tips for maintaining your credit card bill

Consider following these simple steps and developing healthy credit card habits once you've transferred your balance to a new product:

  • Keep on top of repayments: make your monthly repayments on time, and aim to pay more than the required minimum. Read your credit card product disclosure statement to find out the repayment due date. Remember late payments often result in extra interest charges or late payment fees.
  • Set a lower credit limit: if you don't have a need for a high credit limit, don't set one. If you lack discipline when it comes to spending, a higher credit limit might lead you to live outside of your means.
  • Use the interest-free days to repay purchases: most interest-free periods are only available for a limited period of time. Ensure you know what purchases you make for each statement period and when they need to be repaid before you need to start paying interest.
  • Monitor your spending: keep a list of your credit card purchases. This could help you track your spending and determine whether you're spending within your budget.
  • Check your credit card statement: compare your list of credit card purchases against your statement to ensure they match. Make a note of any additional fees charged and look at ways of avoiding them next time.
  • Close your old credit card account completely: if you transferred your credit card balance with the aim of paying it off, and no longer trust yourself to stay within budget using your old card, make sure you properly close and settle your old account. Cutting up a card doesn’t terminate the account, so speak to your provider to find out how to close it off completely.
  • Consider switching to a lower interest rate credit card: once you've paid off your balance with the new credit card, you may find that card no longer suits your spending habits. Perhaps it charges a high ongoing purchase rate, or comes with costly annual fees. Whatever the reason, you may want to consider switching to a low fee or low rate credit card. This way, if you fall into bad habits again you'll have less of a chance of racking up huge amounts of debt thanks to the low interest rate.

Frequently asked questions

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill. 

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

Can I transfer money from my American Express credit card to my bank account?

If you’re an American Express credit card customer, you may not be able to transfer money from your credit card to your bank account. However, you may be eligible for cash advances, which involves withdrawing money through an ATM. 

To qualify for a cash advance, you’ll likely have to enrol for American Express Membership Rewards. Consider checking your online credit card account to see if you can withdraw a cash advance and, if so, the fees and charges you’ll incur for this transaction. 

You should remember that cash advances are different from balance transfers, which were available with some American Express credit cards earlier. Balance transfers allow customers to consolidate debt from high-interest credit cards to a credit card offering a lower interest rate. If you only recently applied for an American Express credit card, balance transfers may not be available irrespective of the card you own. 

How do you cancel a credit card?

It’s important to cancel your old cards to avoid any additional fees. Unless you’re doing a balance transfer, you’ll need to pay the outstanding balance before you cancel your credit card. If you’ve opted for a card with reward points, make sure you redeem or transfer the points before you close your account. To avoid any bounced payments and save yourself an admin headache, redirect all your direct debits to a new card or account. Once you’ve done all the preparation, call your bank or credit card provider to get the cancellation underway. Once you receive a confirmation letter, destroy your card and make sure the numbers aren’t legible.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

What should I do if my ANZ credit card has expired?

Your ANZ credit card is considered expired only after the last day of the month and year marked on your card. For instance, if your card’s expiry date reads 03/22, it is valid until 31 March 2022 and expires on 1 April 2022. Typically, you should have received a new credit card by that date, and you won’t have to request a new card. 

Once you get the new card, you should remember to switch any automatic payments you have - such as a utility or mobile phone bill - from your expired credit card to your new credit card. Equally, if you are using CardPay Direct to repay your ANZ credit card debt, you may need to update the credit card account details for that service as well. 

In case the new card doesn’t arrive by the expiry date of your current credit card, you can call ANZ on 13 22 73 to find out the reason and if you need to request an expedited card. Please note that if you were planning to close your credit card account or request a credit card upgrade, you may need to call ANZ at least before the 25th of the month your current credit card expires in, as that’s when they may send you the new credit card.

How do I apply for a BOQ credit card limit increase?

If you’re an existing BOQ customer, you can request a BOQ credit card limit increase over a phone call. However, you should remember that owning and using a credit card is a matter of financial responsibility, so it might be worth thinking this decision through. 

When requesting a credit card limit increase, you’ll need to be just as responsible in terms of how much you earn and can set aside to repay the outstanding card balance. A credit card company may approve a credit limit increase only if you can show that you have either the income or the disposable income, which is the amount you have left after all expenses have been paid out.

For this purpose, you may need to submit your latest income documents and bank statements for an increase. You may want to estimate how much you usually have left after deducting your expenses, and then use this amount to try and convince the credit card company. Also, you may prefer to pay off the card balance in full each month and thus avoid paying interest on the card, helping you back up any claims of financial responsibility, as well. 

Remember that you may not be able to apply for a credit card limit increase beyond any limitations on the type of card you own. For instance, if you own a card whose ceiling is $10,000, and your current limit is $5,000, you won't likely be able to apply for a $10,000 credit card limit increase.

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

Does ING increase credit card limits?

You may want to increase your credit card limit for many reasons, such as having access to more spending money. However, if you are using the Orange One credit card issued by ING, you may not be able to do so. 

ING customers can choose a credit limit of their preference when applying for the Orange One credit card. Depending on your financial situation, this limit can be anywhere between $1,000 and $30,000. If you qualify for a Rewards Platinum card, the minimum credit card limit will likely be $6,000. 

Ideally, you should set your credit card limit knowing how much you can afford to repay each month and keep your expenses lower than this level. With most credit cards, you should have the option of requesting a credit card limit increase at a later time, although you will need to qualify for any increase. With an ING credit card, limit increases are out of the question (at the time this was published), which means you may want to apply for a higher credit card limit from the beginning. Remember that you have the option of decreasing your ING credit card limit at a later time.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Which credit card has the highest annual percentage rate?

The credit card market changes all the time, so the credit card with the highest annual percentage rate is also liable to change.

Keep in mind that credit card interest rates are expressed as a yearly rate, or annual percentage rate (APR). A low APR is generally good but also consider:

  • There can be different APR's for each feature of the card (e.g. purchases may have an APR of 14 per cent, while cash advances on same card could have an APR of 17 per cent.
  • Credit cards with a variable rate can change throughout the year, affecting your APR, so check the full details.
  • If you pay your balance in full every month, having the lowest APR is not as important as the other fees associated with the card. However, if you carry a balance from month to month, then you want the lowest APR possible.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do I transfer money from my Commonwealth bank credit card to my bank account?

Your Commonwealth bank credit card may include a cash advance benefit, but you won't be able to transfer money to your bank account. 

You can, however, withdraw cash from your credit card at an ATM. You should remember that you have to pay a fee for such transactions, and you’ll be charged interest from the day you withdraw the cash. 

Unlike other credit card transactions, you don’t get an interest-free repayment period for cash advances. Also, you may not be able to access your full credit card limit for a cash advance.

How to get rid of credit card debt

  1. Calculate your debt. Credit card calculators make it easy to determine the repayments required to chip away at your debt in the shortest timeframe possible for your budget.
  2. Repayment plans. Take some time to formulate a credit repayment plan. Consider increasing your income, scaling back your lifestyle or refinancing.
  3. Talk to your credit provider. If you’re still struggling with your debt, give your credit provider a call. You may be able to come to a new arrangement.