Do you want to save interest and pay off your debts? If you want to clear your credit card debt, you can transfer your balance to a new credit card and pay it off with a low or 0% p.a. introductory rate. Use this guide to find out more.
Is a balance transfer right for you?
Need to consolidate debt? Getting a credit card with a 0% or very low interest introductory rate can be a good option if you will be able to pay off the card during the introductory period.
If you think it will take longer than this, or if you also have other debts to consolidate, a personal loan may be a better option for you.
A balance transfer is the process of moving your existing debt to a new credit card with a different bank that offers a lower or 0% p.a. interest rate for an introductory period.
This promotional interest rate runs for a fixed number of months (usually between 6 and 12 but it can vary) and then reverts to a higher standard variable rate.
Sometimes you will pay a one-time balance transfer fee when you move your balance to the new card. Typically, you will need to pay an annual card fee.
Despite these costs, a low or 0% p.a. interest rate means you can save a lot when repaying your credit card debt.
Answers to the most common balance transfer questions and concerns
A balance transfer involves transferring your existing credit card debt with one bank to another bank that offers a low or 0% p.a. interest rate on balance transfers. This allows you to repay your credit card debt and save on interest during the promotional period, which is usually between 6 to 12 months. This can also help you repay your debt faster. If you are unable to repay your entire debt before the promotional period ends, you will be charged a higher, standard interest rate for the remaining balance. This rate is usually the same as the standard purchase or cash advance rate.
You usually need to request a balance transfer when you apply for a new credit card, if you want to take advantage of a promotional 0% p.a. interest rate. Generally, there is a section on the application that asks if you would like to transfer existing debt to the new account. You will need to include the details of your existing credit card debt on the application – including the account number, the issuer’s clearing code (BSB) and how much you want to transfer. If you are successful, your debt will be automatically moved over to your new account after you have activated the new card.
A balance transfer fee is a one-time fee that may be applied when you request a balance transfer, particularly if you are applying for a card with a long 0% p.a. promotional period. This fee is calculated as a percentage of the debt you transfer to the new card and is usually between 1% and 3%. For example, if you had a $20,000 debt, a 3% transfer fee would cost you $600. This $600 would be added to the balance and is usually also eligible for the 0% p.a. promotional interest rate.
The amount you can save depends on the specific features of the balance transfer offer, the credit card and the amount of your existing debt. However, you can see how much you will save on interest charges by using the balance transfer comparison tables on this page. Simply enter the amount of debt you are transferring and the current interest rate you are paying on your existing card and the calculator that’s built into the table will show you how much you will save over the promotional period in the “interest saved” column.
Exactly how much you will save will depend on the size of your debt, the length of the 0% p.a. balance transfer offer and your repayments but you could save hundreds or even thousands of dollars in interest while you clear your debt. This is why it’s important to compare credit cards with balance transfer offers before you apply to see what the promotional rate is, how long it lasts and other fees that apply (such as a credit card annual fee or a balance transfer fee).
Your new card issuer manages the balance transfer process after both your card and the balance transfer are approved. You just need to provide details of your existing card when you apply. If you want to close your old card, you need to do that yourself by contacting your bank. If you don’t close your old account, you may still be stuck with annual fees and other maintenance costs that come with your existing account.
Credit card issuers make money when you pay interest, so why would they charge 0% p.a. when they could charge 20% or more? Here’s why:
You’ll eventually revert to a higher rate. If you don’t pay off your entire debt during the promotional period, you end up collecting interest at the standard rate for your card. This is usually the purchase rate or cash advance rate, which can range between 12% and 22%. Once that happens, your new credit card issuer can potentially make hundreds or even thousands of dollars from you in interest charges.
Persuading you to switch is tough. Kiwis tend to stick with the bank where they first open an account and are reluctant to switch banks and it is often expensive for banks to acquire new customers. Offering a discounted interest rate is one of the cheapest ways for banks to attract potential customers. It is essentially a cheap form of marketing.
You’ll still have to pay interest on new purchases. While you may enjoy 0% p.a. interest on your balance transfer debt, the standard variable interest rate for purchases usually applies to any new purchases you make while you are paying off that debt. This is because most credit cards don’t offer interest-free days on purchases if you are carrying a balance, which means adding new charges to your card could make it harder to save on interest and pay off your debt before the introductory period ends.
No, you typically can’t perform a balance transfer within the same institution. You also can’t perform a balance transfer to other banks within the same group or owned by the same organisation. For instance, you can’t transfer from ANZ to HSBC as they are both owned by the Commonwealth Bank . Check our complete list of which credit card issuers won’t allow transfers between each other to discover which issuers will accept your balance transfer.
Credit card issuers have to provide full details about a balance transfer. But here are two key details to remember that could help you avoid snags:
Reverting interest rate. The promotional rate for your balance transfer is locked in, so you won’t have to pay higher interest rates during the offer period. When the promotional offer ends, a higher revert rate will apply to any remaining debt.
Minimum payments. Even if the card offers a 0% p.a. balance transfer rate, you will still have to make the minimum repayment each month. If you only make the minimum repayment, you likely won’t clear the entire debt before the promotion ends. Once it finishes, any remaining debt will start collecting interest and your balance will continue to grow.
Many Kiwis arrange balance transfers each year and the process is safe. However, our guide to avoiding common mistakes with balance transfers will help you use your new card effectively.
Most credit cards offer a set period of interest-free days as a standard feature of the card. You can usually only take advantage of interest-free days when you have paid your balance in full. So, if you are still repaying the balance transfer, you won’t receive the interest-free days that usually apply to purchases.
While most balance transfer deals are for credit card debt, some credit card issuers will let you transfer debt from a personal loan or store card as well. You can use our guide to learn more and compare credit cards that offer personal loan balance transfers.
How can I compare credit card balance transfer offers?
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 must compare when looking for maximum savings. We include all these features when calculating your total interest saved:
Balance transfer interest rate. This is the interest rate that will be charged on the balance transferred to your new card. Most 2017 balance transfers offer 0% p.a. interest rates for a promotional period of up to 12 months, but some cards may charge a higher rate than this or have a shorter introductory period. Either way, this rate is usually referred to as the “promotional rate” or “introductory offer”.
Promotional period. The promotional period refers to how long the low-interest rate applies. Depending on the card, this could range from 6 to 12 months. Once the promotional period expires, you will pay a much higher rate (the “revert rate”). The longer the promotional period, the more time you have to clear your debt.
Revert rate. After the promotional period ends, the remaining debt will be charged interest at the higher “revert rate”. Typically, this is the standard cash advance or purchase rate and typically ranges from 14% to 21% (Please be aware this can vary). It is sometimes referred to as the “standard balance transfer rate”. 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 revert rate to minimise your interest costs.
Balance transfer fee. This is a one-time fee, that is sometimes charged as a fixed percentage of the debt you transfer to your new card. Typically, this ranges from 1% to 3%. Balance transfer fees are often charged for balance transfer deals with longer promotional periods, such as those offering 0% p.a. interest for 12 months. Try and avoid them if possible or at least make sure that they don’t outweigh the interest savings you will make from the 0% p.a. balance transfer offer. You can use the “Amount saved” column of our comparison table to compare potential savings on cards with and without balance transfer fees.
Annual fee. Most balance transfer offers 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. If there is a promotional 0% p.a. purchase offer in place, your annual fee won’t accrue any interest until the promotion ends. To get maximum value from your card, make sure the interest savings you make from the 0% p.a. balance transfer offer outweigh the annual fee.
These card features are less important when you are paying off existing debt but are still worth factoring into your comparison:
Purchase rate: This interest applies to any new purchases made on the card. While this is usually 14% or more, some credit card issuers offer a promotional 0% p.a. rate on purchases as well. You can check out a full list of cards with that feature here. While it is best practice not to use your card for purchases while you are consolidating your debt, you need to pay attention to the purchase rate if you plan to use the card for purchases once the balance transfer offer ends and you have repaid your debt.
Other benefits: Cards may offer additional benefits such as the ability to earn reward points or free insurance for travel booked on the card. These may help you reach a conclusion, when comparing two similar cards, but shouldn’t be the deciding factor when comparing balance transfers.
Why might my application be refused?
Financial institutions assess balance transfer applications carefully. To increase your chances of approval, here are some factors that may cause a bank to decline your application :
Poor credit history. You will need a good credit history to obtain a balance transfer deal. If haven’t checked your credit history in a while, you can order a free copy of your credit score here. However, if you have a poor credit history due to missed payments, defaults on your account or significant levels of debt, you might need to repay more of your debt and demonstrate your ability to make regular repayments before you apply.
Submitting multiple applications too rapidly. Each application you make for a balance transfer deal is recorded in your credit history. If your application is refused, don’t just apply to a different credit card issuer straight away. Instead, take some time to repay your debt and carefully compare other card options and ensure you tick off the eligibility criteria before you apply. Follow the steps in our guide on what to do if your application has been refused to increase your chances of approval when you next apply.
Transferring to the wrong bank. If you try and get a balance transfer deal from a bank with the same owner as your current card, you will be immediately refused. You can’t transfer your debt from a ANZ card to HSBC card, as they are both owned by the Commonwealth Bank. Check out our full list of which banks you can transfer between before you apply.
Cards in a different name. Your new balance transfer card must be in the same name as your current card. If you apply with a different name, such as your partner’s name, you will be turned down. If you need a card with multiple account holders, follow the steps in our guide to getting joint accounts.
To maximize your chances, follow our step-by-step guide to successfully applying for a balance transfer.
Can’t get a balance transfer?
If you don’t qualify for an interest-free balance transfer on a credit card, look at debt consolidation loans to see if they can help you pay off your debt.
Used intelligently, a 0% p.a. balance transfer card will reduce your interest payments and get you out of credit card debt faster. Used the wrong way, your debts can actually become larger.
Ensure you don’t get trapped in balance transfer debt by avoiding these mistakes:
Forgetting you still have to make payments
Even if there is a promotional period with interest at 0% p.a., you still have to make at least the minimum payment each month. You can’t simply balance transfer and then stop making payments on your debt. The minimum repayment is usually stated as between “2% to 5% of outstanding balance or $5 to $25, whichever is greater”.
Not checking the revert rate
Once your balance transfer promotion finishes, you will be paying the revert rate on the remaining balance. When you compare credit cards with balance transfer promotions, aim to choose a card with a revert rate that is lower than your current credit card rate. Alternatively, make sure you repay the entire debt before the revert rate applies.
Not making more than the minimum repayment
If you are only paying the minimum repayment each month, you won’t be able to repay the entire balance by the time the 0% p.a. balance transfer offer ends. Then your debt will start to collect interest and grow again. Instead, you should 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 will give you a goal repayment to meet every statement period to clear the debt before the 0% p.a. promotion ends. So how much should you pay each month? The table below shows what percentage you should pay off each month to fully clear your debt during the interest-free balance transfer period. We have also shown how much this would be for a $10,000 debt. For this example, we are assuming no new purchases are being made with the card.
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.
Putting new purchases on your card
Adding new debt will slow down your ability to repay your card. Don’t buy anything new on your credit card that you can’t immediately pay off in full. Banks are required to allocate repayments to whichever debt is accruing the highest interest on your account. So, if your balance accrues 0% p.a. interest and your purchase collect the standard interest rate, your repayments will go to the purchases rather than your balance transfer. Even if your card has a 0% p.a. rate on new purchases, you should concentrate on repaying your debt rather than making more purchases.
Not considering all applicable fees
While you won’t be charged interest with a 0% p.a. balance transfer, you may have to pay annual fees and a balance transfer fee. Make sure you consider these when choosing a balance transfer deal. Don’t dismiss cards purely on the basis of fees. Use our calculator, which compares the total costs for cards, to find the right deal for you.
Keeping your old card open
It is tempting to hang on to your old card “for use in emergencies”. Realistically, if you have run up debt on it before, you are likely to do so again. Cancel the card and concentrate on paying off the balance and remember to transfer any regular payments. Ask your old bank for the final payout figure so you don’t have any leftover debt.
Answers to the most frequently asked questions about balance transfers
Applying for balance transfers
This is usually possible if you and your partner/spouse are already using a joint-account credit card. Read our full guide and find out which banks allow this type of balance transfer. However, you usually can’t transfer a debt that is in someone else’s name to a new account that is under your name.
The key rule that decides whether you can balance transfer to a bank is whether or not your existing bank belongs to the same credit provider. For example, balance transfers are not allowed between an ANZ card and a HSBC card as the Commonwealth Bank is the credit provider. Find out which banks won’t accept your balance transfer.
No. Existing customers are ineligible to apply for 0% p.a. interest balance transfer offers with their existing bank. However, if you balance transfer to a different bank, when this balance transfer promotion has ended you will be able to transfer back to the first bank again.
No, you can only transfer balances from credit cards issued in New Zealand.
While you could be approved for your credit card within 60 seconds, it may take between 1 to 2 weeks for your old balance to appear in the new account. Please note the 0% p.a. balance transfer offer applies as soon as your card is approved rather than when your balance is in your account.
Using balance transfers
Unfortunately, you can’t take advantage of the standard interest-free days feature when you have an outstanding balance. However, some cards do offer promotional 0% p.a. offers on both purchases and balance transfers. You can compare credit cards with interest-free purchases and 0% p.a. balance transfers here.
You should make repayments by the due date detailed on your bank statement for each statement period. While you are only required to pay the minimum repayment, you should always aim to pay more to clear your debt faster. This is especially important when you are using a 0% p.a. balance transfer offer that will only apply for a promotional period. To avoid paying interest on your debt, calculate how much you need to pay each month by dividing the size of your debt by the length in months of the promotional period. This will give you the amount you should aim to repay each month to clear your balance before the promotion ends.
Yes, you can repay your balance as early as you like. In fact, it is wise to clear your debt as fast as possible to avoid revert rates and any additional interest costs. Unlike a fixed schedule personal loan or home loan, there are no penalties for clearing your credit card debt ahead of time.
Banks allocate your repayments to the highest rate of interest first. This means that with a low-interest-rate balance transfer promotion, repayments will usually go towards purchases and cash advances first. As a result, try not to make other purchases while repaying a balance transfer so all your repayments are dedicated to clearing your debt.
Sally McMullen is Finder's credit cards and frequent flyer editor by day and a music maven by night. She's also one half of the Pocket Money podcast. Her byline can be spotted on Yahoo Finance, Dynamic Business, Financy and Mamamia as well as Music Feeds and Rolling Stone. Sally has a first-class Honours degree in Communications and Media Studies (majoring in Journalism and Professional Writing) from the University of Wollongong.
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