Balance transfer credit card: Explained

Navigating the world of credit cards can be a complicated endeavour – especially when it comes to choosing the right card for you. Balance transfer credit cards are an excellent option for those looking to make more economical choices with their finances, allowing them to avoid interest payments and focus on paying off principal balances faster. In this blog post, we’re going exploring what exactly is a balance transfer credit card, how it works and some key features that might make one worth considering as part of your overall financial strategy. Whether you’re already familiar with this type of product or new to the concept, there’s something here for everyone!

If you’re an Australian cardholder struggling with credit card debt and require a little time to get back on track without interest, then a balance transfer card could be the answer. credit wash 

Consolidating your debt with a balance transfer is an excellent way to increase your financial freedom in Australia. By transferring the debt from one card provider to another, you can take control of how much interest and fees you are paying on that outstanding balance. This smart move can save Australians hundreds or even thousands of dollars each year!

With a balance transfer credit card, you can take advantage of 0% interest on your transferred balance – an offer that is typically only available for a limited timeframe.

If you’re considering a move to a big four bank (CommBank, Westpac, NAB or ANZ), switching to another competitor like Bankwest, Citi or Virgin Money, or even opting for an online-only solution – there are several credit card providers that provide balance transfer cards. 

What is the maximum sum I can transfer with a balance transfer card?

Obtaining a balance transfer credit card can potentially limit the amount you’re able to move from one account to another, which largely depends on your approved maximum credit line. Card issuers will evaluate different aspects of your finances such as income, existing debt load and other bills before coming up with an appropriate figure for this cap. Usually, 70-100% of the given limit is allowed when transferring balances between two cards.

Let’s say you have a credit card balance of $4,000 and a new balance transfer card with an available credit limit of $5,000. If this particular credit facility allows for up to 80% of your total available credits limits to be transferred at once, then you can fully fulfil your existing debt obligation.

The pros of a balance transfer credit card

Balance transfers aren’t just a lifesaver for those with debt; they can also be exceptionally beneficial for shoppers who are looking to get more from their spending.

Reaping the advantages of balance transfer credit cards can differ from provider to provider. Therefore, it’s beneficial to use a comparison tool regularly in order to evaluate if your current card is leading the competition.

Are you considering a credit card balance transfer? Here’s all that you need to know!

While balance transfer cards have the potential to bring great savings, there are a few costs and risks associated with them that you should consider.

Balance transfer fees

New customers may face a variety of potential expenses when using your balance transfer card, including standard fees and charges specific to the transfer.

• Standard purchase rate: The interest rate for any new purchases with your balance transfer credit card is high. To ensure you don’t add to the debt, it’s smart to store this card in a safe place such as a drawer or even better – put it in the freezer! This way, you won’t be tempted by alluring offers and will keep from adding more debt than what was originally transferred over from your existing credit cards. credit wash 
• Annual fee: To remain open, your card account is subject to an yearly fee that can range from $0 all the way up to a maximum of $1,200.
• Balance transfer fee: When you switch your debt from an old card to a new one, the issuing provider will charge you a balance transfer fee. This rate is usually around 2% of your outstanding balance and can be referred to as the “balance transfer rate”. credit wash 
• Cash advance rate: If you opt to utilise your balance transfer card to withdraw money, watch out – this move could come with a cash advance interest rate that is often higher than the purchase rate. Make sure to consider these costs when budgeting for your withdrawal.

Balance transfer period 

Taking advantage of the grace period to pay off your existing balance without incurring any credit card interest is otherwise known as a balance transfer. This offer usually spans a few months, with some providers even extending it up to two years! While specific terms and conditions can vary from one credit card provider to another, this extended payment time frame could be just what you need if you’re looking for more flexibility in managing your finances.

At the point when your balance transfer credit card’s interest-free period ends, it will revert to its regular purchase rate – which is normally more than most people anticipate. Subsequently, assuming that you haven’t paid off the full amount by then, you will be charged a startlingly high rate of interest on any remaining balance due.

Impacting your credit rating

Obtaining a credit card can be a risky venture. If you find yourself unable to pay off the balance, switching to a balance transfer wouldn’t be enough and your credit score is likely to suffer as consequence. 

Moreover, if you don’t completely scrutinise the credit card provider’s criteria for eligibility, it could lead to a rejection when applying. Furthermore, multiple rejections on applications can take its toll on your credit score too.

How to do a balance transfer

While it may differ depending on your chosen card provider, here is generally the step-by-step process of how you perform a balance transfer:

• Compare balance transfer credit cards. The first and most critical step is to compare credit cards available, find one that suits your financial situation and budget. Assess potential fees, the length of zero percent interest period as well as if you are able to pay off your debt during this window. Utilise comparison tables and calculators for ease in making a decision. 
• Apply for your new balance transfer credit card. To reduce the likelihood of your application being declined, make sure you have a healthy financial standing and good credit record. Applying for a balance transfer card should take only minutes, but approval can take between 1 to 10 days. Bear in mind that it might up to two weeks for your new card to arrive after submitting an application.
• Check your transfer is completed. Once you are approved, the balance transfer will be processed automatically. The provider may reach out to verify your details before executing the transaction. Your new card statement should reflect the transferred balance promptly after completion of the move.
• Close the old card account. A fundamental step in getting control over your credit card debt is closing the old account to prevent further indebtedness, whether through new purchases or recurring fees. You must settle any outstanding balance prior to shutting down the account. Make sure you think about this if you weren’t able to move all of your balance over to a different card. 

It’s time to get started on your journey towards debt freedom. Start now by taking the first step in paying off that credit card debt!

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