Using a balance transfer to pay debt

It can be easy to tap away with a credit card and find yourself with a hefty bill to pay at the end of the month. Or perhaps you made one big purchase recently. Either way, the lower the interest rate the easier it is to pay off your credit card debt. So a card with a 0% p.a. rate is a great option. And one way to achieve this is to do a balance transfer.

What is a balance transfer? 

If you have a credit card with a balance owing on it, you can transfer the balance to another credit card provider. Some credit card providers offer a 0% p.a. interest rate for a specified period of time on whatever balance you transfer, allowing you a set amount of time to pay off that debt without accruing interest charges.

For example, if you have a $5000 balance owing on your credit card, transferring to a card with a 0% p.a. interest for 24 months offer means your balance can be paid down fully with payments of $208.40 each month over that interest free period.

How do you use a balance transfer?

It’s important to do your research and find a credit card balance transfer offer that suits you and your financial situation. Once you have found the card which offers you the most suitable deal organise with your new provider to have your balance transferred from your old card. Remember to close your account with the old provider. This will ensure you avoid unnecessary fees on your old card and prevent you from continuing to use your credit card for any new purchases.

You can still use your new credit card during the interest free period, but do keep in mind you will be charged interest on any new transactions. Some providers waive the interest free period on credit cards while you’re also paying your balance transfer, so you will accrue interest from day one if you continue to make purchases on your new card. Ensure you read the T&C’s so that you know when you will be charged interest on purchases. 

Find a credit card balance transfer offer that suits you and your financial situation. 

Why it might be a good financial decision

Having a set period of time that allows you to pay off debt without accruing interest charges can be a good way to get on top of your finances. If you work out how much your repayments will be each month, you can budget your money accordingly.

A balance transfer is a good opportunity to transfer to a credit card with benefits better suited to your lifestyle, which your old credit card, just didn’t offer. For instance, you could find a credit card with a lower interest rate which offers complimentary family travel insurance, longer interest free periods and no foreign transaction fees when you’re shopping online or travelling overseas. 

Roll off rate and why it’s important

The interest free period on a balance transfer will end eventually and the 0% p.a. interest will be no more. It’s important you know the interest rate you roll on to after the interest free period is finished for any remaining balance that you transferred. It can, in some cases, revert to a cash advance rate which is higher than some standard credit card interest rates. Cash advance interest rates are often over 20% p.a. so you could find yourself paying even more in interest than previously.

You don’t need to be put off though. Some providers will roll the remaining balance on to their standard interest rate straight away. This could be a more manageable interest rate and save you money if you haven’t managed to pay off the entire balance you transferred across. 

If you can afford to, you can make larger repayments to pay it off even quicker.

Paying down your balance transfer

0% p.a. is the best interest rate you’ll ever get and you will want to take advantage of it while you can. Divide your balance and any card fees (e.g. $5000 + $99 annual fee) by the number of interest free months (e.g. 24 months). This will give you an indication of what your repayments need to be every month. If you can afford to, you can make larger repayments to pay it off even quicker.

You can easily set up monthly payments to automatically be paid from a nominated bank account in to your credit card account, so you won’t forget to make the payment every month. Bankwest Easy Alerts will even let you know when your payment is due, and when your scheduled payment is being paid.

Things you should know

The information contained in this publication is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this publication without first obtaining specific professional advice. To the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL/Australian credit licence 234945, its related bodies corporate, employees and contractors accepts no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this publication.

Bankwest Easy Alerts are available for your mobile personal transaction and savings accounts. Limited alerts only are available for credit card transactions. Bankwest Easy Alerts will be sent to any compatible iOS and Android device on which you have the Bankwest App and enabled notifications. Whilst some alerts may be sent to your device once you have enabled notifications, in order to receive the full range of Easy Alerts available you will also need to activate the Bankwest Easy Alerts service within the Bankwest App. Terms of Use apply. Bankwest Easy Alerts is currently supported on iOS 9 and Android 5.0 devices and above. Bankwest Easy Alerts is not available on tablets and Windows devices.