Australian credit card types: Balance Transfer
Balance Transfer credit cards
Balance transfer credit cards can sometimes be a helpful debt consolidation option. These cards allow you to transfer the existing debt balance on your old credit card onto the balance transfer credit card at a low or 0% rate of interest for a set term.
Balance transfer credit cards can offer timely relief for outstanding balances not expected to be repaid within a couple of months. This means that instead of accruing interest at the purchase rate on an outstanding balance, you can transfer it to a balance transfer card and expect to earn little or no interest at all on it. However you will only save money with a balance transfer if you expect to take longer than a few months to repay the outstanding debt. Otherwise annual fees as well as other fees associated with the transfer may offset any interest savings you eventually make.
Be warned that despite the good intentions behind balance transfer offers, these cards are like normal credit cards with an extra balance transfer option and a few more hidden catches. The special balance transfer rate only applies to the amount transferred and not to any purchases or cash advances made thereafter. Therefore any purchases or cash advances made on the card will be immediately charged interest at the respective purchase or cash advancement rate. Consumers who use these cards to make both balance transfers and purchases are warned that repayments made offset the balance transfer amount before reducing purchases; the results of which can be devastating as purchases are charged at much higher rates of interest than balance transfers.
Lifetime balance transfer credit cards
Lifetime balance transfer credit cards remove the time constraints on low rate balance transfer credit cards. It allows a transferred debt balance to be charged at a low balance transfer rate until that entire balance has been repaid. These cards can be extremely useful if you have a large balance that may take longer than 6 to 12 months to repay. However they are hard to come by and will usually attract high annual fees and purchase rates.
0% Balance Transfer for 6 months
0% balance transfer offers are an attractive credit card deal that allows you to transfer the balance on an old credit card and pay 0% interest on that balance for the first 6 months. After the 6 months, the remaining balance will be charged at the standard purchase rate on the card. These cards are good if you have a relatively small debt that can be paid off within 6 months. Terms and conditions vary widely amongst different credit cards and lending institutions.
0% Balance Transfer for 12 months
Like the 0% balance transfer for 6 months, these credit cards allow you to transfer the balance on one credit card and pay 0% interest on that debt for 12 months. After the 12 months, the remaining balance will be charged at the standard purchase rate. This means that if you are eligible for this card you could be paying no interest at all on your debt for a year.
No Balance Transfer fee credit cards
Balance transfer cards may offer the cost effective way to reduce your interest expenses however the fees and costs attached may make the option less viable. Be aware that there may be handling or processing fees associated with the transfer. There may also be fees charged by your current credit card provider that is associated with closing your account. Fees and conditions vary widely amongst cards so check with your provider before making any decisions.
Published: 8 December 2010