A balance transfer card can be a good solution if you have a balance on a card that is proving to be hard to clear or reduce.
How do zero per cent balance transfer credit cards work?
In short, you transfer the existing balance on your current credit card onto a new card that has a set period of zero interest. This lets you put all of your monthly payment onto the principal of the outstanding balance, which means you both save interest and pay off the balance sooner.
While you're saving money (and time), you do need to look at the other features and fees involved with the new card. Many BT cards have a transfer fee - often around two per cent of the balance you're planning to move - as well as an annual fee. You need to factor this into your calculations when you're comparing the market offers.
How to compare balance transfer cards
The interest rate
When you're looking for a good balance transfer deal, the most important factor is the length of the zero interest period, as this tells you how long you have to make significant inroads into your balance. Most zero interest periods are 12 to 18 months, but there are longer deals, up to 22 or even 26 months.
The balance transfer fee
Next, you need to look at the balance transfer fee. Mostly you'll pay two per cent, but it's important to make sure that you can afford it, especially if you're transferring a large balance. Some cards have no BT fee while others have smaller or larger ones. It's, as ever, a case of shopping around.
The annual fee
Annual fees for balance transfer cards tend to be in the region of $70 to $130, but can be as high as $450, as is the case with the Qantas American Express Ultimate Card. This might seem quite a steep fee, but there are a few attractive perks that might make it worthwhile.
Obviously, you have to include the fee in your calculations, as it could impact on how long it takes you to clear your balance, especially if you don't take up on the free domestic and international travel insurance offered.
The revert rate
All good things come to an end, and whether your zero interest period is six months or two years, your card will return to its standard interest rate, which might be higher than the rate applied to your current product. Many BT cards have a revert rate of 20.74 per cent p.a., although you can find cards with rates as low as 12 or 13 per cent p.a. but these products tend to have shorter zero interest periods and fewer perks.
How much can I save with a balance transfer card?
If you have, for example, an outstanding balance of $4,000 on a card at an interest rate of 18.99 per cent p.a. and you transfer this amount onto a BT card with a 26-month zero interest period, you could save up to $716. This saving takes into account a two per cent transfer fee and assumes you make 26 payments of around $154.
Australia's longest zero interest BT card deals
If you're not sure you could clear your balance with a card that's over two years interest-free, then you could opt for a shorter period with a low revert rate, like the Move Bank Low Rate Visa Card. This no-frills card has a revert rate of 8.99 per cent p.a. but no perks or rewards programme. There's an annual fee of $59 and a six-month interest free period. If you don't clear the balance in six months, you'll probably still end up on a lower interest rate than your present one.
When it comes to long interest free periods, however, there are a few products available, with the longest balance transfer deal being 26 months.
Here's Infochoice's pick of the longest interest free deals on balance transfer cards.
The Bankwest Breeze Platinum Mastercard offers borrowers a 15-month interest free period, after which the card reverts to 21.99% per cent p.a. with a $99 annual fee. This deal also features free international travel insurance.
The Virgin Australia Velocity Flyer Credit Card offers borrowers looking for a balance transfer deal 22 months at zero per cent, after which the card reverts to 20.99 per cent p.a. with a $129 annual fee. In essence, however, you get the fee back through an annual Virgin Australia gift voucher, so if that's something you're likely to use then this could be a good deal.
There's a rewards programme with an earn rate of 0.66 Velocity points per dollar spent, as well as free travel insurance and purchase protection.The Citi Rewards Credit Card also offers borrowers looking to transfer a balance a 26-month zero interest period, after which the card reverts to 22.24 per cent p.a. with a $199 annual fee ($0 for the first year). There's a balance transfer fee of 1.5 per cent and the package comes with free travel and purchase insurance. A particularly nice perk is that as a Citi cardholder you'll receive a free bottle of wine when you eat in a partner restaurant.
This update is not financial advice. This article is general news and information.
Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.
Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.
WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements
InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.
The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.