Switch to a low interest credit card

Discover how you can get out of debt sooner by switching to a credit card with a lower interest rate.

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If you have credit card debt, paying a high-interest rate can make it difficult to get out of the red. A balance transfer to a card with a lower interest rate could help you save money on interest charges and pay your credit card debt off sooner rather than later.

There is a wide range of balance transfer deals out there, many with a 0% promotional interest rate period. This guide explains how balance transfers work; examines the different cards that offer ongoing low-interest rates, and discusses other factors to consider before applying for a new card. If you decide this option is right for you, we also outline the steps you need to take to switch to a low-interest credit card.

Choose your type of low interest credit card

How do balance transfers work?

A balance transfer saves you money on your credit card interest repayments by allowing you to move existing debt to a new card with a low promotional interest rate. Say you have a $5,000 credit card debt accruing interest at 20% p.a. If you apply for a credit card offering a 0% interest rate on balance transfers for six months, you could save up to $487 in interest repayments during the introductory period.

At the end of the introductory period, the promotional interest rate reverts to the purchase or cash advance rate, depending on the credit card. Depending on your circumstances, you could then carry out a second balance transfer to receive another introductory rate on your credit card debt. If you decide on a second balance transfer, bear in mind that applying for these offers on a regular basis may have a negative impact on your credit rating and lead to declined applications.

What about cards with low ongoing interest rates?

Low-interest rate credit cards offer competitive standard variable purchase rates that are lower than many other cards. Unlike low rates for a promotional period, this type of card gives you ongoing low-interest rates that may be beneficial if you regularly carry a balance.

Low rate credit cards can also feature promotional purchase rate offers and balance transfer offers. So, if you have card debt that will take longer than 12 months to pay off, you may want to consider transferring it to a card that offers a promotional balance transfer rate and a low ongoing interest rate, which could help you save money on interest charges when paying off the debt over several years.

If you decide to transfer your balance to a card with a low standard variable purchase rate, be sure to check the revert rate at the end of the balance transfer promotional period. The balance transfer rate will revert to either the purchase or the cash advance rate, and the cash advance rate of a low rate credit card can be as high as 23% p.a., which is not ideal if you still have debt to pay off.

Other factors to consider

Before switching to a low-interest credit card, make sure you think about the following factors:

  • Standard interest rates. These are the ongoing rates of interest that apply after the introductory promotional period finishes. Be sure to check both the purchase rate and the cash advance rate, and which rate will apply to any remaining balance on the card.
  • Annual fees. Annual fees for cards with low ongoing interest rates can range from $0 to $65, but can as much as $390 for some premium cards with balance transfer offers, which is an ongoing cost you have to pay for most cards. So, remember to compare a range of options to find the features you want for an annual fee you’re willing to pay.
  • Balance transfer fees. Some credit card companies charge a one-off balance transfer fee, usually worth around 1-2% of the balance transfer amount. For example, if you transferred a debt of $5,000 to a card that charged a 1% balance transfer fee, this fee would cost you $50. Make sure you read the balance transfer requirements and factor this cost into your comparison so you can choose a card affordable for you.
  • Maximum transfer amount. Credit card companies put a cap on the maximum amount you can balance transfer. The maximum balance transfer amount ranges from 75-100% of your approved credit limit and is subject to application and lending criteria for individual cards.
  • Interest-free periods for purchases. You’re ineligible for interest-free days on purchases if you’re carrying a balance on your card, which means any new purchases you charge to the account will accrue interest immediately.
  • Complimentary extras. Low rate credit cards may offer value-adding features such as complimentary travel insurance, purchase protection insurance or even rewards. These features usually attract a higher annual fee, so they’re only worth it if you regularly make use of them.
  • Late payment fees. If you don’t pay off at least the minimum of your balance each month, your provider could charge costs of around $10-$30. Late payments also result in a listing on your credit file, which could negatively affect your credit score.

Steps you can take to switch to a low-interest credit card

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Once you compare cards and find one you’d like to switch to, follow these steps to complete the process:

1. Find out your current balance. Work out how much debt you need to transfer to pay off your credit card(s).

2. Check the application requirements. Assess whether you’re eligible for the balance transfer credit card. Some cards require a minimum income amount and also list balance transfer limits, which is essential when you’re preparing to make the switch.

3. Apply for the card. Provide as many details as possible in all sections of the application, including your personal information; employment information; assets and liabilities. To receive the balance transfer offer, you usually have to request it when you apply. There will be a section on the form that prompts you to enter the details of your existing debt, including the account name and number, provider details and the amount of debt you wish to transfer to the new card.

4. Activate the card. Balance transfers are not fully processed until your provider activates the new credit card. Once you receive approval and your new card arrives, follow the steps the provider supplies for activation. Also, remember to continue making any payments on your existing card if they are due before the credit card company transfers your balance.

5. Wait for the credit card company to finalise you balance transfer. Your new bank must contact and buy the credit card debt from your old bank. This process usually takes approximately ten business days but could be more or less depending on the issuer and your circumstances.

6. Close your old account and start paying off the new one. It’s your responsibility to close your old credit card account after you complete a balance transfer, which will help you save on credit card fees and reduce the temptation to spend more on credit.

When you want to switch to a low-interest rate credit card, it’s essential to have an understanding of how long the rate applies. Some cards offer promotional low-interest rates, others provide ongoing low purchase rates, and there are some that offer both promotional and continuing low rates. However, whatever you’re looking for, remember to consider the card’s annual fee so you can find the right standard features and promotional offers at an acceptable price. If you need help comparing credit cards, ask us a question using the form below, and a member of our team will be in touch.

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