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Explained: Credit card balance transfers


Find out how to do one and how it could help you save.

If you’re struggling to pay off credit card debt, you may have been told to look at doing a credit card balance transfer to a different credit card with a lower interest rate offer.

And while this could be a good solution to help you save money and clear your debt faster, let’s look at the pros and cons and whether it might be right for you.

What exactly is a credit card transfer?

A credit card balance transfer basically means you’re moving the amount you owe on one credit card (or multiple cards) to a new credit card, usually with a lower or 0% interest rate. This is known as an introductory rate and it’s usually in place for a specified period of time, giving you a bit of breathing space to pay down your debt.

Pros and cons to credit card balance transfers

Doing a credit card balance transfer, especially to a card with an introductory interest rate for say, six months, can be a great opportunity to smash your credit card debt. It can save you money if you’re proactive about paying your card off during the introductory period. It can also offer you the opportunity to consolidate debt from multiple cards onto one card with a lower rate, and pay it off as one debt.

The downsides to credit card balance transfers is that it may have the potential to hurt your credit rating. Also, there can be fees to get started, and if you’re transferring debt from multiple cards you may pay multiple fees (and then you need to consider any other ongoing fees too).

Finally, if you don’t pay off your debt within the introductory rate period, it could cost you even more – because the ‘revert interest rate’ on balance transfers can be significantly higher once your introductory rate finishes.

Tips for paying off your credit card debt

If you decide to go ahead and do a credit card balance transfer, here are some tips and strategies to make it work for you.

1. Cancel the old card. If you’re able to transfer the entire amount onto the new, lower interest rate card, make sure you cancel the old one so you’re not tempted to rack up more debt on it.

2. Set repayment reminders. The lower interest rate period won’t last forever, so make the most of it! Set reminders so you’re never late with a repayment and try to pay more than the minimum payment if you can.

3. Try and pay off the balance during the low interest period. You may have to tweak your budget and make some sacrifices to pay it off, but it’s worth it to avoid the higher interest rate that will apply once the introductory period ends. Use a calculator to work out whether you can afford to pay your debt off within that time.

4. Put limits on your spending. If your goal is to do the balance transfer to clear your credit card debt faster, try not to use the card to make purchases or draw cash out. You’ll just create even more credit card debt rather than paying your balance down.

Other solutions to dealing with debt

Concerned you may still struggle to pay your credit card debt even after transferring the balance to a lower interest card? There may be other solutions that work better for you.

Firstly, take stock of your debts and figure out what you owe in total. It can be hard to do this, but it’s an essential first step towards taking control of your finances.

Do a budget (or review your existing budget) to figure out where you can cut back and funnel those funds consistently towards paying off your debts.

If you need additional support or advice, contact a financial counsellor who can assist you in figuring out which debts are priority and how you can make a plan to pay them off.

This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Information in this article is current as at the date of publication. We do not recommend any third party products or services and we are not liable in relation to them. Any links to third party websites are for your information only.

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