Balance Transfer Credit Cards

Do you want to save on interest and pay off your debts? You can apply for a balance transfer credit card and pay it off at 0% or a low-interest rate.

In New Zealand, the average credit card balance accruing interest as of November 2022 was a massive $5,973 and the average interest rate is 18.6% p.a. With a balance transfer rate of 1.99% p.a. being paid off over 24 months, the average cardholder could save about $1,100 in interest charges.

Use our guide to find out more about how this works, what to consider and how to compare balance transfer offers.

What is a balance transfer credit card?

A balance transfer card acts just like a standard credit card but allows you to move your existing card debt from a card at a different bank. It offers 0% or a low-interest rate on the transferred balance for an introductory period or the life of the balance.

A balance transfer can save on interest, and you can repay your debt faster than if you keep it on an existing card. If you have a balance transfer card with a promotional interest period and cannot repay your entire debt before this ends, you are charged a higher interest rate for the remaining balance. This rate is usually the same as the standard purchase interest rate on the new card.

• The 0% or low promotional interest rate usually runs for a fixed period, which in New Zealand is typically 6 months, although ANZ does offer a balance transfer for 24 months. Once this period is over, a higher standard rate applies. Westpac is currently the only bank in New Zealand to offer a lower balance interest rate for the life of the transferred balance.
• With most new cards, you need to pay an annual account fee. Annual fees typically range between $20-$390 depending on the card’s perks and benefits. Some low-interest cards don’t have an account fee, and some cards waive the first year’s fee.
• There are restrictions on how much debt you can transfer to your new card. Banks often state a minimum amount between $100 and $500, and you may only be able to transfer a percentage of the available credit limit on your new card such as 95%.
• You can save hundreds of dollars in interest if you manage your payments well and pay off your balance during the no or low-interest period.

Despite these conditions, a no or low-interest rate means you can save a lot when repaying your credit card debt.

Getting a credit card with a 0% or very low-interest rate can be a good option if you can pay off the card during the introductory period. If you think it will take longer, a personal loan is also worth considering.

If you don’t qualify for an interest-free balance transfer on a credit card or have multiple debts that are getting on top of you, a debt consolidation loan may help you save on interest with one repayment to worry about.

An example: 0% balance transfer card vs paying off a standard credit card

To help you figure out whether a balance transfer card could save you money (and time), we’ve compared a common balance transfer offer against one with monthly repayments on a standard credit card. We assume that both cards annual fee is the same, and no new purchases are being made.

In this example, a credit card balance transfer will save you $278.75 in interest, and you’ll pay off your debt two months faster – even while making the same monthly repayments and forking out for a balance transfer fee. You can use our credit card repayment calculator to determine how much you could save and set your repayment goals.

How to choose the right card

There are plenty of balance transfer card deals available in New Zealand, so how can you pick the right one? These are the crucial features you should compare when looking for maximum savings:

• Balance transfer interest rate. This is the interest rate that is charged on the balance transferred to your new card. The Co-operative Bank and ASB currently offer 0.0% for 6 months on their cards, while Kiwibank charges 1.99% for 6 months. With the ANZ Low Rate Visa, the interest charged on your transferred balance is 1.99% p.a for 24 months. Westpac has a higher rate of 5.95% p.a., but this rate applies to the life of the balance rather than a promotional period.
• Promotional period. The promotional period refers to how long the 0% or low-interest-rate applies. Depending on the card, this could range from 6 to 24 months, or for the life of the balance. The longer the promotional period, the more time you have to clear your debt and save on interest.
• Standard interest rate. After the promotional period ends, the remaining debt is charged interest at the higher standard interest rate. This typically ranges from 9.95% to 20.95% p.a. – but please be aware that rates can vary depending on the type of card. If you don’t think you can repay your entire debt before the promotional period ends, you should look for a card with a lower standard rate to minimise your interest costs or opt for a card with one interest rate for the life of the balance.
• Annual fee. Most cards charge an annual fee, starting from when the account is opened. Some credit card issuers waive this for the first year. The annual fee is treated as a purchase and incurs the same interest rate as other purchases you make with the card. Cards with higher annual fees come with more benefits, but if you are looking to save and pay off your debt, it may make more sense to stick with the lowest fees possible.
• Interest-free purchase period. Some credit cards come with an interest-free period of up to 55 days for purchases. However, there are usually conditions such as having no balance transfers and paying your previous statement closing balance in full. While this feature won’t be of benefit as you are paying off your debt, you may be able to take advantage of it in the future.
• Other benefits: Cards may offer additional benefits such as earning rewards or free travel insurance for travel booked on the card. These may help you reach a conclusion but shouldn’t be the deciding factor when comparing balance transfer credit cards. These benefits are often available on cards with higher interest rates and account fees.

How to carry out a balance transfer in 4 steps

1. Compare balance transfer offers
Use the table above to compare offers and see how much you could save.

2. Apply for a new card
Read the requirements, gather your documents and request the balance transfer during the application.

3. Activate your new card
When you receive the card, activate it by phone or online (and start making repayments).

4. Close your old account
You are not required to close your old account, but this is usually a good idea to help you stay out of debt.

Quick tips for making the most of your balance transfer

1. Make sure you can transfer enough of your balance. It doesn’t have to be 100%, but if you have to split your balance, make sure you can manage both cards.
2. Pay off the full balance before the end of the promotional period (auto-payments can help). This way, you avoid the higher revert interest rate.
3. Don’t spend on the new card, then your repayments go towards your balance transfer, and you won’t add to your debt.

Pros and cons of balance transfer credit cards

Balance transfer credit cards can be a useful tool to help you pay off existing debt and clear your balance faster. However, there are some potential downsides to these offers. Make sure you consider all the pros and cons that are relevant to your situation.

Avoid these balance transfer mistakes

Used intelligently, a balance transfer card reduces your interest payments and gets you out of credit card debt faster. Used the wrong way, your debt can increase.

Ensure you don’t get trapped in balance transfer debt by avoiding these mistakes:

1. Forgetting you still have to make payments

Even if there is a promotional period, with a 0% or low-interest rate, you still have to make at least the minimum payment each month. You can’t simply apply for the balance transfer and then stop making payments on your debt. The minimum repayment is usually stated as between 2% to 5% of the outstanding balance, or $5 to $25, whichever is greater.

2. Not checking the standard interest rate

Once your balance transfer promotion finishes, you pay the standard interest rate on the remaining balance. When you compare credit cards with balance transfer promotions, aim to choose a card with a standard purchase rate that is lower than your current credit card rate. Alternatively, make sure you repay the entire debt before the standard rate kicks in.

3. Not prioritising payments to the balance transfer debt

Unless you have other more expensive debt that you are trying to pay off, you should prioritise your balance transfer debt to get it paid off before the end of your low or no-interest period.

4. Only making the minimum payment

If you are only paying the minimum repayment each month, you won’t repay the entire balance by the time the balance transfer offer ends. Then your debt starts to collect interest and increase. Instead, it is best to calculate exactly how much you need to pay each month to repay the entire balance by the time the interest-free period ends.

You can do this by dividing the size of your debt by the number of months in the balance transfer offer. This gives you a repayment goal to meet every statement period to clear the debt before the promotion ends.

The key lesson? Budget as much as you can towards paying off your credit card debt while the promotional rate applies. If you haven’t paid everything off, it is possible to apply for another balance transfer.

5. Keeping your old card open

It is tempting to hang on to your old card “just in case”. Realistically, if you have run up debt on it before, you are likely to do so again. Cancel the card, cut it up and concentrate on paying off the balance.

Remember to transfer any regular payments and check with your bank if there is any outstanding fees or interest charges before you forget about it completely.

Frequently asked questions

• Does 0% interest mean no payments?

  No, even if you’re paying 0% p.a. interest on your balance transfer debt, you still have to make at least the minimum repayment for each statement period. This is usually stated as “2% to 5% of the outstanding balance, or $5 to $25, whichever is greater.”, although the percentage and dollar amounts vary between cards. You can check the minimum payment requirements by looking at the review page for individual cards or looking at the key facts sheet that credit card providers must share with you before you apply.

• Can I apply for another balance transfer offer with the same bank after my current promotion has ended?

  No. Existing customers are ineligible to apply for another balance transfer offer with their existing bank.

• How many times can you do a balance transfer?

  There is no set maximum amount of times you can transfer a balance between credit cards. However, you should factor in any balance transfer fees, the enquiries on your credit report and your chance of receiving approval for new cards with different banks. Ideally, it would be best to focus on paying it back in full and eliminating the need for multiple transfers.

• Can I use my balance transfer card to make new purchases?

  Yes, but those purchases collect the standard purchase interest rate. Even if your card has an introductory 0% rate on new purchases, you should concentrate on repaying your debt rather than making more purchases. It’s also important to note that for many banks interest-free days don’t apply to purchases when you’re carrying debt from a balance transfer.

• Do balance transfers hurt your credit?

  A balance transfer does not inherently hurt your credit score. Whenever you apply for a new credit card, it does leave a hard enquiry on your credit report (and may decrease your score), but the balance transfer itself does not affect it. That said, missing repayments on your credit card hurt your credit score, so be sure to weigh up what’s best for keeping your credit healthy.

• Can I repay my card before the balance transfer period ends?

  Yes, you can repay your balance as early as you like. In fact, it is wise to clear your debt as quickly as possible to avoid revert rates and any additional interest costs.

  Unlike a fixed schedule personal loan or mortgage, there are no penalties for clearing your credit card debt ahead of time.

• What happens if I keep my old card open?

  When you transfer an existing balance to a new card, it’s your responsibility to contact your current credit card or loan provider and close the old account. If you don’t, you could end up paying account costs for a card you’re not using. Before you close the card, make sure the balance is completely transferred or paid in full and move any regular payments (such as direct debits) to another account.

Balance transfer credit cards can help you save on interest costs and get your debt under control. As there are plenty of balance transfer cards on the market, there is no one best option that works for everyone. Instead, look at the size of your debt, what you can afford to pay each month and the card’s features to find a balance transfer card that works for you.