You’re free to transfer as much as you like, from as many cards as you like, as long as it is not more than your approved credit limit on your new card.
The average Australian has more than $3,000 of credit card debt. This makes us one of the biggest borrowers in the world. This debt is typically spread between 2.2 credit cards, which means most of us carry more than one card at a time. But the trend of keeping just one is catching on, especially with credit card issuers coming to the rescue with various balance transfer offers.
Most issuers will allow you to transfer debts from multiple credit cards. The limit isn’t usually how many credit cards you can transfer from, but the total debt between them. Generally speaking, banks and lenders allow you to transfer up to 95% of your credit limit on the card you wish to transfer to. You should be able to put multiple debts in one balance transfer card. This is known as debt consolidation.
Why get a balance transfer?
There are several advantages to consolidating your credit card debt, the most obvious of which is the low interest rate. Banks usually offer a lower-than-average rate, or even zero interest, for six to twelve months after you get approved. This allows you to pay the debt off faster. If you were paying 15% on a $5,000 debt, transferring it to a 0% card will save you $750.
Transfer all your existing credit cards and store credit cards
The Citibank Clear Platinum allows you to transfer the debt on your existing non-Citibank credit cards and store credit cards at a promotional balance transfer rate. Also enjoy a low annual fee and a low interest rate on purchases.
- $49 p.a. annual fee for the first year ($99 p.a. thereafter) annual fee
- 0% p.a. for 6 months (reverts to 12.99% p.a.) on purchases
- 0% p.a. for 6 months on balance transfers
- Cash Advance Rate of 0% p.a. for 6 months (reverts to 21.74% p.a.)
- 55 days interest free
- Minimum Income Requirement of $35,000 p.a.
Answering to only one debtor is an important yet often overlooked benefit of balance transfer cards. As Bankwest (The Bank of Western Australia) explains, one card and one statement are easier to manage than bills from three different banks, and there’s less risk of losing paperwork along the way.
Costs of multiple transfers
Some banks will take care of the transfer for you, but in most cases—especially if you’re transferring multiple cards—you may have to coordinate the transfer yourself. This means contacting each of your old creditors and informing them of the transfer, having them sign the forms, and turning them over to your new issuer.
Currently there are no fee for carrying out a balance transfer if you’re opening a new account.
Try to set up the transfer so that everything’s ready by the time you get approved. Often, if you get your approval before the transfer is finalised, the six-month or one-year clock starts ticking—even before there’s any debt on your new account. Also, according to The One Income Dollar, a personal finance blog, you may have to keep making minimum payments on your old accounts until the transfer is official. Otherwise, they may charge penalties on the month you expected the transfer to take place, meaning you can still owe them money even after the transfer. It would also look bad on your credit report.
The six-month race
Because the low introductory rate lasts six to twelve months, you only get to pay at 0% for a year at most. When the “honeymoon period” is over, you revert to the regular rate, which often nears or exceeds 20%. If you’re sure you can pay off your transferred debt before that happens, you don’t have to worry about the revert. Taking our $5,000 example, you will have to pay $416.67 per month if you have a 0% rate for one year, or $833.33 it’s a six-month deal. If you are only able to pay back half, the other $2,500 will be subject to, say, a 20% rate, or an extra $500.
Negative payment hierarchy
The importance of not spending on your credit card once you’ve carried out a balance transfer is stressed by the governments recent changes to the payment hierarchy system. Prior to July 2012, the lower interest debts like balance transfers and special low interest promotions were paid first, while high interest debts, like cash advances, were paid second.
But the rules have changed and now the opposite applies. The July 2012 Credit and Banking Reforms have switched the payment hierarchy, which means that now the higher interest debts will paid off first and lower interest debts are paid off second.
If you spend on your credit card while you’re taking advantage of a promotional interest balance transfer promotion, you’re reducing the time you get to pay the debt off at a low interest rate. Any payments you make onto the card will go towards paying off new charges first. Just remember, the clock is ticking and you have to use every day you get with a balance transfer promotional rate of interest to reduce your credit card debt.