Low Balance Transfer Credit Cards

It's when one credit card repays debts on other credit or store cards; so you now owe it the money instead, hopefully at a special cheap rate.

TIP It is best to make your balance transfer within a couple of months of opening the new card account otherwise the opportunity could expire. It's important you don't confuse cutting the interest with paying less each month, as that's determined by the minimum repayments.

Learn how low rate balance transfer credit cards works, and how to identify the best offers. Be aware of the main pitfall of making purchases on a balance transfer credit card. Check out the St.George Vertigo MasterCard as a great all-rounder for balance transfers and future purchases.

A low rate balance transfer credit card is used when you have an outstanding balance on another credit card at a regular rate of interest. The process is that you apply for the new low rate balance transfer card and make the request to transfer the balance on the application form itself. This is used for balances that are likely to take more than a few months to pay off. Any less than that, and you will probably pay more on the new card's annual fee than you save on interest charges.

Making a balance transfer will allow for a quicker repayment of the balance because you can direct the money you save on interest towards paying it down, or alternatively you can take more time paying it off because you know that the interest charges are not so punitive. In the latter scenario, as balance transfer deals are for a limited time, you should still aim to clear the balance before the offer period ends and the interest rate reverts to the card's regular one.

The worst decision on how to use a balance transfer credit card is to treat it as just another credit card, meaning you use it for new purchases or cash advances. Once you have set your balance transfer in progress, you need to put your new credit card somewhere safe and not take it out again until after your offer period has expired. This is because of the way credit card companies apply your repayments. It is variously called the order of payments, the adverse order of payments, or the allocation of payments. It means that the way your debts are repaid is according to the rate of interest applied to them, and your cheaper debts are always repaid first. This keeps the more expensive debts earning interest for the credit card provider for the longest time. The message is therefore to avoid purchases and cash transactions on a credit card to which you have transferred a balance.

The only time this will not apply is when there is a combined deal on balance transfers and purchases, but these must be at the same rate of interest and for the same time period. Even then, cash transactions will not be included, which means no ATM cash withdrawals, no foreign currency purchases or traveller cheque purchases, and no gambling transactions. If you do want to continue with your credit card spending, use the old credit card that now has a clear balance.

There are different kinds of low rate balance transfer credit cards available. Your choice will depend on the amount you need to transfer, and crucially on how long you predict it will take to pay it off completely. The most common deal at the moment is the 0% balance transfer offer that is set for six months. You can also find slightly higher rates for a year or so, and higher rates again for offers that last until the transferred amount has been paid off in full, however long that takes.

It is important that you judge this correctly and do not go for the 0% deal just because it is the lowest, especially if the card's regular interest rate is one of the highest. If you fail to pay off the balance in full within the allotted period, you will then be subject to this regular rate. It is far better to take a slightly higher balance transfer rate for a longer period. An all-round option at the moment is the St.George Vertigo MasterCard which is offering 0.99% p.a. for 6 months on balance transfers, and a regular rate on purchases of just 13.24% p.a.

Very few credit cards in Australia charge a balance transfer fee, so if you do see one that does charge you need to consider looking elsewhere, especially if an annual card fee is also being levied. However, bear in mind that you will very seldom find a great balance transfer deal and a zero annual fee combined. The credit card provider has to make some money somewhere.

Here are a few examples of low rate balance transfer deals currently available:

• St George Vertigo MasterCard - 0.99% p.a. for 6 months on balance transfers
• Citibank Clear Platinum Card - 0% p.a. for 12 months with 3% balance transfer fee on balance transfers
• Citibank Platinum Credit Card - 0.9% p.a. for 15 months on balance transfers

Unlike a loan, credit cards have minimum monthly payment requirements over which you can decide how much you wish to pay each month. Therefore, even if you have a lower interest rate, if the minimum monthly repayment rate is higher than with your previous cards you will have to pay more each month. Of course, this means that you are paying off the capital faster but you have to ensure you can afford to make the required minimum payment each month.

However, if you can pay more than the minimum requirement you should certainly do that to ensure you pay off all your debt before your time runs out. Even if your interest rate is 0%, it's still debt, even if it's free and it won't be free forever. This rate, though, will give you the chance to pay your debt off much faster which is why you should take advantage of it by paying as much as you can every month.

Remember that the lower interest rate means that the total amount you will be paying back will be a lot less. So, you will also be saving money in the long run which is why you should focus on clearing your balance transfer as quickly as possible.

Is there a balance transfer handling fee?

As mentioned already, this is not normal, so the deal must be truly spectacular to justify one being in place.

How soon do you have to transfer your balance?

You may have up to three months to make the transfer before the option to do so expires. However, why would you want to waste that amount of time? Your best bet is to make the transfer request on the application form for the card itself. There is a special page for this.

Does my credit limit apply to balance transfers?

If you have been approved for the card but the limit you have been given doesn't cover your needs, you still should use it. You might be annoyed but that isn't a good enough reason not to use it. After all, lowering your debt by something is better than not lower it at all.

Simply do balance transfers for however much you can, close any of the credit cards you have paid off in full and then apply for another card from another provider to clear the rest.

One issue that will likely have an impact on the credit limit you are approved for is the credit crunch. This is because providers are not so lax anymore and offer much lower limits than before. The result is that you will probably need two cards to cover the debt of a single card. The more applications you fill out, the lower your score and so a vicious cycle is born.

How are your payments allocated?

This is very important. Your repayments will be directed towards paying off your cheapest debt first, so you should not be making any purchases on a credit card that you have transferred a balance to, because these purchases will accrue interest at the regular rate until your transferred amount has been fully paid off.

A healthy portion of our articles are dedicated to or involve a credit card balance transfer, as the benefits are simply indispensable. Using a hypothetical balance of $5000, on a credit card with a 18% interest rate (which is a fairly standard rate on any non-low interest cards), the savings across different balance transfer types you can take advantage of include:

0% for 6 month Credit Card Balance Transfers:

$5000 at 18% interest, paid off over 6 months: $450
$5000 at 0% interest, paid off after 6 months: $0

2.9% for 12 month Credit Card Balance Transfers:

$5000 at 18% interest, paid off over 12 months: $900
$5000 at 2.9% interest, paid off over 12 months: $145

Credit Card Balance Transfer 'For Life':

$10,000 at 18% interest, paid off over 36 months: $5400
$10,000 at 4.9% interest, paid off over 36 months: $1470

Is this all I'll have to pay from a balance transfer? What's the catch?

You'll still need to pay the upfront annual fee of the credit card your planning to carry out a balance transfer towards. This means an upfront fee of While there's no simple 'catch' to balance transfers, there are a couple of easily avoidable pitfalls.

On the right is a screenshot of our balance transfer calculator demonstrating a 0% p.a. for 6 month balance transfer.

For a more comprehensive guide to balance transfer credit cards, visit our credit card balance transfer section, which also features the latest balance transfer cards available in Australia.

Learn the key points that must be taken into account when you compare balance transfer credit cards. Understand how to make sure that a great balance transfer deal works in your favour by recognising the main trap to avoid. There are not too many issues to watch out for when you compare balance transfer credit cards, but you must get them right. This is especially the case if you are making a large balance transfer because so much more is as stake. A low rate balance transfer credit card is used when you have an outstanding balance on another credit card at a regular rate of interest. The process is that you apply for the new low rate balance transfer card and preferably make the request to transfer the balance on the application form itself. Balance transfers are for useful for amounts that will take more than a few months to pay off, because if you are looking at any less time, you will probably pay more on the new card's annual fee than you save on interest charges.

Here are a few examples of balance transfer deals currently available, to give you an idea of what to look for:

• St George Vertigo MasterCard - 0.99% p.a. for 6 months on balance transfers
• Citibank Clear Platinum Card - 0% p.a. for 12 months with 3% balance transfer fee on balance transfers
• Citibank Platinum Credit Card - 0.9% p.a. for 15 months on balance transfers

What interest rate applies to the balance transfer?

This is the first question to ask when you compare balance transfer credit cards because this is the whole point of your making a balance transfer - to enjoy a lower rate of interest on your outstanding debt. Rates for balance transfers range from 0% to around 9%, depending on the length of time the offer is for. Generally speaking, at the lower rate you will be allowed less time to settle your debt before the regular rate kicks in. Offers come and go, so you may find that some of the higher balance transfer rates fall away somewhat if there are low regular rates available. Credit card providers know that an 8.99% balance transfer rate does not look so hot when there are credit cards that offer regular rates of just slightly more.

Another crucial question to ask when you compare balance transfer credit cards. This is something you must judge correctly, or you may choose too short a period and end up with a portion of your debt still unpaid when the offer period expires and the higher rate takes over. Currently, there are a number of offers at 0% for six months, but you can also find six month offers at higher rates but they come with other features. For example, some rewards credit cards also offer a host of extra perks and benefits to offset it. For the most part, the longer the offer period for the balance transfer, the higher the interest rate. However, you should always check on current offers because some can buck the trend a little and be pleasantly surprising. Again, this is the case with the St.George Vertigo MasterCard that is now offering 0.99% p.a. for 6 months on balance transfers. Balance transfers that last for the life of the debt can also be found, but these tend to be more common on platinum level cards.

There's sometimes a hidden sting with these cards; if you spend on them, it's often at a high interest rate and can't be repaid until all the cheap debt has been. They may try and tempt you with cashback or short term 0% deals on any spending; ignore it. The rule is simple; never, ever, ever, ever spend on these cards. If you do all the benefit will be lost.

• Say you have transferred a balance of $10,000 to your new credit card. You then spend a $500 purchase on the card, at a 15% interest rate.
• You will not be able to pay off that $500 purchase until the whole transferred balance itself has been paid off, thus accumulating a fair bit of interest.
• It is simply one of the techniques used by banks to profit from balance transfers. As mentioned prior there's a simple solution to avoid the hidden sting – use a different credit card for new purchases.
• Banks often provide the incentive of an annual fee waiver if $X amount of money is spent on your card during a balance transfer.

It is quite normal for an annual fee to be charged for the account maintenance of the credit card, although an actual balance transfer fee would be very unusual. Annual fees are something to check when you compare balance transfer credit cards, to make certain you are not being penalised for a great balance transfer rate by a hefty annual fee. However, depending on the size of the transferred amount and the rate offered, paying a few dollars more for an annual fee is probably neither here nor there. At the moment, there are balance transfer credit card deals that do not charge an annual fee, including the HSBC Credit Card and the Virgin No Annual Fee Credit Card.

You will normally find in the fine print that you have a limited time from the date you receive your card in which to instigate a balance transfer. This could be up to three months, or could be as little as one month. This means that after this time you will not be able to make a balance transfer according to the original offer. You must also remember that the offer period on your balance transfer begins when you get your card, not when you decide to request the transfer. So, with a six month deal, if you delayed three months before making the transfer, you would only have three months left at the lower rate of interest.

The clue to this is in the wording: balance transfer. Hoping to compare balance transfer credit cards and find one that covers everything you put on the card is not realistic. The special rate of interest applies to the transferred amount only. It will not apply to any new purchases, nor to any new cash transactions made on the card, including purchases of foreign currency and traveller's cheques, nor any gambling transactions. The amount you are transferring from your old credit card can obviously contain transactions made in these ways, but making such transactions on your new card will cause them to be treated very differently to the transferred amount. The reason for this is down to the next point.

This is also sometimes called the allocation of payments or the adverse order of payments. These all refer to one practice: namely, the way the credit card company uses your repayments to pay off the balance on your credit card. The order of payments rule states that the lowest rate debts are cleared first. This means that the amount of your 0% balance transfer is paid down before your purchases at 15%, which are cleared before your cash advances at 20%.

Your repayments are not split in any way. Until your balance transfer is paid off in full, any new purchases or cash advances on the credit card will not be touched and will simply accrue interest. Clearly, if a large amount of purchases were allowed to accrue interest untouched for twelve months, this could easily negate a lot of the benefits of having made a balance transfer in the first place. This would be a key point on which to compare balance transfer credit cards if different providers payed things differently, but this is a rule that is applied everywhere in the Australian credit card industry. It is for this reason that it is very important that you do not make any purchases or cash advances on a credit card you have transferred a balance to at a much lower rate. The only time this is not the case is when your new card has a combined offer applying to balance transfers and new purchases that are at the same rate for the same length of time.

No, you must be transferring a balance from a different bank than the new card is issued by. For example, you could not transfer a balance from one ANZ credit card to a different ANZ credit card.

Once you have been successful in your application for a card and your balance transfer has been approved, you have the choice of closing your old account or keeping it open. This is something that you are responsible for doing yourself and is something that shouldn't be overlooked as you may still incur unnecessary fees and charges on your old account.

It is also important to remember to change any direct debit agreements you may have had in place on your old card. Services like phone bills, utilities and internet arrangements to name a few, will still be charged to your old account if you don't switch payments to your new credit card and you are responsible for contacting any service providers and informing them that your old account has closed or is no longer your primary card.

Yes, you are not absolved from making your minimum payments just because you have a new low rate of interest on your balance transfer. You are still required contractually to pay at least your minimum payment each month, and a failure to do so could even cause your low rate offer to be rescinded. This is a point to check out in the fine print when you compare balance transfer credit cards, but don't be too surprised if this is the case.

Learn the simple rules on how to use balance transfer credit cards. Understand that balance transfer credit cards should only be used for balance transfers, and not for purchases or cash advances, otherwise much of the benefit will be negated by the order of payments rule.

The best advice on how to use balance transfer credit cards is to make your balance transfer and then not to use your card again until it is fully paid off. The reason for this will become abundantly clear. The other main issue to remember is why you have had to make the balance transfer in the first place. If this is because of some poor financial planning in the past, now is the time to start putting things right.

This is not just an important factor in how to use a balance transfer credit card, it is also an important life-skill to possess. Presumably you will have chosen your balance transfer credit card carefully, picking one with a low enough rate and a long enough offer period to allow for the transferred amount to be fully paid off. This, of course, can only happen if you plan ahead. Whatever you used to pay on interest charges should now be paid towards the debt. The extra finances should not be seen as spare cash to spend on further items. You need to write a detailed budget, taking into account your income and expenditure, and then set aside as much as you can spare to pay down your balance each month so that it is completely paid off before the offer expires and the higher regular rate of interest kicks in.

This is key in how to use a balance transfer credit card; you must try not to be caught with an outstanding balance at the end of the offer period. It may be that another balance transfer could be made to another credit card, but this cannot be guaranteed. This will all depend on your credit rating, which may not be good enough to allow for another transfer to take place. This means it is imperative that you take full advantage of the opportunity afforded by your low rate balance transfer deal, and clear your debt in full within the allotted time. By understanding your credit card you will learn valuable financial skills.

The best time to make your balance transfer is when you are filling out the credit card application form. There will be a special page for this request to be made. This is important in how to use a balance transfer credit card most effectively because it presents you with the longest amount of time for your balance transfer to be in effect. Your balance transfer is time-limited in how long the offer is for - unless it is a balance-transfer-for-life - and also in how much time you have to set it in motion. It may be that you only have one to three months from the time you receive your card to actually request the balance transfer. If you are looking at a 0% deal for six months, then every day lost is going to cost you in the higher interest rate you are still being charged. If you move outside this transfer window, your chance to act will be lost.

That's about it on how to use a balance transfer credit card. The rules are few and simple, but you need to adhere to them for there to be any point in making the balance transfer in the first place. Stick to the rules and you can enjoy a zero or low rate of interest and clear your debt in the quickest possible time.

1. Change of attitude required - Making a credit card balance transfer will only work if you have the intention of using the lower interest rate period on the new card to actually pay off the debt, rather than give you some wriggle-room to fund a new round of spending.
2. Debt consolidation- Balance transfers 'til I die - This can't happen. You cannot keep making credit card balance transfers in perpetuity. Credit card applications have an effect on your credit rating, and may lower your credit score. Credit card providers have access to your credit history and will not approve your application if they know you are being a credit card 'tart'. You have to leave time between doing balance transfers.

   Making several credit card balance transfers to bring all your debts together under the umbrella of one credit card can simplify your finances considerably. If you have four or five cards, all requiring minimum payments, it is easy to put one of the bills to one side and forget about it. If you receive your bills online, this is even more of a danger because you will not even notice anything lying around when you tidy up.

3. Other loans may be transferred - Find out if your new card will accommodate other types of loan, such as one you may have on a vehicle, or any another large purchase. If you can shift all these to 0% for a few months, so much the better.
4. Fees - Beware the 'hidden' costs of making a credit card balance transfer. Most card providers charge a fee, which is worked out as a percentage of the amount being transferred, so you will have to calculate all the costs involved - including any annual fee for the new card - and decide if it is worth making the transfer.
5. Length of low-rate period - Keep a close eye on the time you have left on your introductory interest rate. Time passes very quickly. When the higher interest rate kicks in, you will be back at square one if you have made no effort to lower the debt significantly. Add in the balance transfer fee, and you may actually be down on the deal.
6. Your new low rate does not cover future purchases - In nearly all cases, the introductory offer on your new card only applies to the credit card balance transfer from your other card, and not to any purchases you make on your new card. Those will be subject to the normal APR.
7. Repayments hierarchy - This means that any repayments you make on your debt will first go towards reducing the credit card balance transfer amount. This is linked to the point above. Other purchases made on your new card will be at the normal rate of APR and will not be touched until the transferred amount is paid off.

   Understand negative payment hierarchy and if it applies to you. Negative payment hierarchy is a credit card standard in which they apply all of your payments to the portion of your bill with the lowest interest rates. One of the best balance transfer tips is to only use the card for balance transfers and not for purchases. The only exception is if both purchases and balance transfers have the same interest rate.

8. Your credit rating must be good - Similar to the above point, you cannot even start this credit card balance transfer process if you do not have a pretty sound credit rating in the first place. If it looks like you're on the verge of bankruptcy and this is your last-ditch attempt to stop it happening, you won't be approved because your new provider will not want to be the one who has to write off the debt due to insolvency on your part.
9. Make all your payments on time. If you miss or make a late payment the credit card company may change the interest rates of their credit card. Rates are subject to you keeping up your end of the deal by paying on time. In addition to any fees that you may be charged there is a good chance you will lose the zero percent you are being charged for your balance transfer.
10. Find a credit card company that has good customer service. Anyone who has ever dealt with poor customer service understands how important it is. Trusting any credit card company is difficult in these financial times. Find one that you believe will not increase your monthly payments or change due dates without notice.
11. Find a card that is flexible. Some cards will allow you to transfer money from your card into your account. Unlike a cash advance, this money goes straight to a personal loan or an overdraft charge. These balance transfer tips can help you to pay off those other debts at the introductory rate of zero percent.
12. Know the brand of your card and the card to which you are applying. Most credit card companies will not allow a balance transfer between their own cards. It may not be immediately clear whether or not cards are connected so be sure to double check before you apply to a card on the parent company.
13. Time your balance transfer. If you are planning to transfer balance from one financial institution to another, then you should not transfer large balances if the introductory offer is about to end in a few short months. You don't want to be stuck paying off your debts with a high interest (which usually starts to take effect once the intro period is over) as the balance transfer would just be useless. The smartest thing for you to do is to apply for a credit card and at the same time apply for the balance transfer. This way, you will be able to make the most out of the zero percent interest free introductory period when you pay for your large balances. On the other hand, if you are not so sure that you will be able to have your balance transfer as soon as possible, then it would be best to apply for a balance transfer card that has a long introductory period so that it will provide you with plenty of time for your balance transfer to be approved.

This means the expensive debts from spending are effectively trapped, speedily accruing interest, and you can't repay them until you've cleared all the cheap debt. Thus you can be racking up debt which you will eventually have to repay later. Clearly credit card providers make their money this way because they want you to spend whilst you are paying off your balance you transferred to them. To avoid this situation it would be better to get a second card with a low purchase rate.

Balance transfer tips are important to evaluate if you are considering this option to reduce debt. It can be a good way to reduce the amount of money you spend on interest. It can help you pay off the outstanding amount or at the very least free up your monthly cash for other expenses.

Following simple tips for balance transfers can make them a worthwhile way to save money and pay off debt. All you have to do is pay close attention to your finances and you will be able to take full advantage of the benefits.

• How do I do a balance transfer?
• Which cards provide the lowest interest rates?
• How do I compare balance transfer rates?
• Can I Balance Transfer from a single primary cardholder to a joint primary cardholder? - This is especially important when it comes to marriage and the joining of assets and debts.
• Are 2nd Balance Transfers Possible?
• Long Term Balance Transfer Approval Requirements