Credit Card Balance Transfer Offers

Credit Card Balance Transfer - How to maximise your savings

As competition in the Australian market intensifies, we have seen more credit card issuers introduce “low introductory” interest rate periods as a means of acquiring new customers. Many of these promotional deals are offering 0% for an introductory 6 month period, or a rate around the 6% mark for the life of the balance transfer period.

Simple steps to follow

1. Don’t use the new card: Balance Transfer amounts transferred over onto your new card are actually paid off first. For example: if you transfer $5000 onto your new card at the introductory rate of 0% and you then make purchases in the month of $500, your new balance will be $5,500.

If you then make a payment of $500 , this $500 will go off the balance transfer amounts and not the new purchases. So your new outstanding balance amounts will be:
- $4500 – at 0%
- $500 – at (assume) 12%.

Suppose the next month you make purchased of $2000 and then pay this amount off. Your new balance will be:
- $2500 – at 0% - $2500 – at (assume) 12%.

As you can see, by using your credit card during your introductory period you are actually not maximizing the potential interest saving

2. Cancel up your old card: Don’t fall into the trap of keeping your old credit card. As soon as you have received the new card you should cancel the old one. If you don’t, then you can quickly find that your outstanding debt has quite quickly increased.

3. Pay off the balance within the introductory period: Once the introductory balance transfer period has ceased any outstanding balance transferred amounts will revert to a higher interest rate. Make sure you understand if this revert rate is the purchase rate or the cash advance rate.

4. Watch our for the revert rate: Make sure you understand what rate any existing into balance transferred amounts revert to att he end of the intro period. Some cards revert to the cash advance rate while others revert to the purchases interest rate

Balance Transfer Credit Card offers if used correctly can be an effective way to reduce interest rate charges in the short term, but you also need to take into consideration if the credit card is best for your needs in the longer term. Don’t forget to look at the ongoing interest rate for both purchases and cash advances.