Balance transfer credit cards

Transferring your debt to a low-interest card may not be the magic fix it seems.
 
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01 .Introduction

Reducing the cost of balance transfer

Credit cards companies commonly market low interest rates for debts transferred from other cards as a way to attract new customers. Usually, the interest rate applying to the balance transfer ranges from 0% to 5%, for a period of 4 months up to as long as it takes you to repay the debt.

Switching to a low-interest balance transfer credit card can be a good way to get a handle on your debt, or to avoid making repayments for a specified time. But for the unsuspecting or undisciplined, balance transfer cards can be a disaster. Card companies also use balance transfers to reel people in with tempting offers but then slug them with catches can create bigger interest bills than before.

How it works

  • You sign up with a new card and provide details of your old card.
  • The new company transfers the balance of your old card across to the new card.
  • The balance transfer interest rate applies to that amount only.
  • If you’re currently carrying a debt on your credit card, this can lower your repayments, or suspend them for a while, enabling you to get back on track.

Steps to choosing a balance transfer card

Read the 5 worst traps of balance transfer cards to get the real story and to make sure switching is a good idea.

Next, use the interactive table to compare the following features and decide what’s most important to you:

  • Balance transfer interest rate
  • Balance transfer period
  • Standard interest rate for purchases and cash advances
  • Annual fee
  • Number of interest-free days
  • Check other features of the card, such as the way it applies interest on late or incomplete payments. We've compared more than 20 major providers.

Before making the switch, double check the rates and fees with the provider (our rates, originally sourced from Canstar Cannex are correct as at March 2010), and whatever you do, don’t use the card for new transactions until the balance transferred is repaid in full.

 
 

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Trap #1: The “payment hierarchy” con

When you make repayments, they’re firstly applied to the balance transfer amount, even if it has a 0% interest rate or some time before the introductory period expires, and even if other purchases and cash advances are accumulating interest at higher rates. For example, with Westpac, “Payments made to your credit card account are first applied to any amounts transferred from other credit cards, charge cards or store cards under this promotion, before they are applied to any other purchase or cash advance amount. This means that the portion of your outstanding account balance that is subject to a lower interest rate will be paid off first.”

Such practices could soon be illegal in the UK, having been described by one personal finance commentator as “the single biggest stealth charge that credit cards levy .” Something needs to be done in Australia too. Katherine Lane, Principal Solicitor with the Consumer Credit Legal Centre in NSW, says the payment hierarchy practice “is a trick most often used in interest free deals (attached to credit cards) to trigger interest being charged. It is completely unfair.”

Trap #2: High interest on new transactions

After you transfer your debt to a low-interest card, any new transactions you make usually attract interest immediately at the standard rate, which is invariably much higher than the low introductory rate. You may have no interest-free period with such transactions. For example, with Citibank’s 2.9% balance transfer card, “any transactions made other than with this offer are at the standard Credit Card rate, currently 20.39% pa.” Similarly, Westpac's fine print states “you will not gain the benefit of the interest free period on credit purchases until the full balance (including any balance transfer and any other promotional amount) is paid by the statement due date each month.”

Not every provider treats new transactions in this way. Aussie’s card, for example, offers the low introductory rate to new purchases for the first six months, as well as to balances transferred. NAB also offers its 0% balance transfer rate to new purchases for the first six months, but interest applies to other types of transactions. It's terms state that the “0% purchase rate excludes cash advances (including bills paid over the counter at a bank, financial institution or post office and for the purchase of travellers cheques).”

Trap #3: Luring you into a bad deal

The balance transfer might simply be the hook that lures you into a card that’s otherwise poor value in terms of fees and standard interest rates. Many have standard annual interest rates close to 20% or even higher.

Trap #4: Percentage fees

A fee may apply to transfer the balance. For example, according to Bankwest’s small print, with Zero MasterCards there’s “a 1% Balance Transfer Handling Fee to a maximum of $50 that applies to each balance transferred”.

Trap #5: Double trouble

You might be tempted to keep spending on the old credit card, increasing your debt problems and requiring even bigger debt repayments for two cards and increasing your problems. Consider cutting up the old card.

Comparison table list

  • By default ALL tested products are listed. You can select up to five items to view in a side by side comparison.
  • There are no additional columns to view with the Next/Previous buttons in this report.

Using the filters

  • Use the filters to show only products that meet your specific requirements or which have the specific features you're interested in. Selecting filters automatically updates the Comparison table list.
  • The number shown in brackets represents the number of products that will be shown if you select that filter. 
  • You can view additional filters by selecting the Show more filters button.

Make a selection

 
 
Balance transfer interest rate (%)
Balance transfer period (months)
Standard interest rate (%)
 

Compare products

 
Table Allowing the user to select a number of products dependant on their filter options.
Items to compare

Select up to 5 items below.
Then click the compare button

Compare
 
Annual fee ($)Balance transfer interest rate (%)Balance transfer period (months)Standard interest rate (%)Cash advance interest rate (%)Maximum Interest Free Days
       
580612.7420.9955
492.99612.2918.7955
854.9Life17.9917.9955
852.9611.8511.8555
893.99615.2420.2455
552.99611.9920.7455
01.99916.9916.9955
01.99916.9916.9955
01.99916.9916.9955
591.99910.7521.4955
891.99910.7521.4955
1201.991510.7521.4955
892.91220.4920.9955
1492.91220.4920.9955
2294.9Life20.4920.4955
2504.9Life20.4920.9955
792.91220.3920.3955
990611.4920.9955
652.9615.4920.9955
364.99611.4911.4955
751.99919.1420.6445
1251.99919.1420.6445
2501.99919.1420.6445
2501.99919.1420.6445
00619.7421.9962
04.99619.2419.2455
584.99615.4920.9955
490619.4920.9955
05.99616.9919.9955
2000619.9520.9555
500412.9520.4555
653.99619.4919.4944
1503.99619.4919.4944
1503.99619.4919.4944
653.99619.4919.4944
494.99612.4920.9955
654.99619.4919.4944
145.56.99619.4919.4944
2906.99619.4919.4944
304.99618.9918.9944
04.99513.113.10
04.99516.616.646
104.99610.2410.2455
893.99615.2420.7455
552.99611.9920.7455
2053.9Life19.9919.9955
632.91219.4919.9955
991.9919.2519.7555
392.91211.7417.490
553.99620.220.245
03.99619.2420.740
1001.99919.1420.9945
1501.99919.1420.9945
2951.99919.1420.9945
301.99918.8420.7455
901.99918.8420.7455
1301.99918.8420.7455
75-1250.99618.7419.9945
125-2500.99618.7419.9945
451.99912.7420.7455
Compare
Source: www.canstarcannex.com.au. Details checked and updated by CHOICE in March 2010.
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