• Personal Finance Basics

Before you read this article! We deal daily with people who have transferred their credit cards onto a balance transfer card and 12 months later they had double the debt they had at the start. If you don't close the old credit cards AND reduce your spending it won't work. It can be a high-risk strategy.

If you're struggling with credit card debt it might seem counterintuitive that another credit card could help fix it. A balance transfer credit card, if you are disciplined, can be a fantastic way to clear your debt.

A balance transfer card works by offering a low or 0% interest rate for a time period before reverting to a high-interest rate. We had a quick look at the Australian market and found interest-free periods from 12-36 months. So, for 36 months you will pay zero interest. There are however fees and charges. Most balance transfer deals will charge a transfer fee of 3-5%. If the transfer fee was 3% and you transfer over $10,000, your new balance transfer credit card would have a balance of $10,600. There is also an annual fee that range between $100 and $300.

When will it work?

A balance transfer will work if you can afford to pay it off by the end of the interest-free period. If you can't pay it off in time, the interest rate on whatever is left resets to a crazy level (20-30%) and then you're in trouble. If you transferred $10,000 with a 36-month interest period, you would need to be able to afford $286 per month. Calculation: ($10,000+$300 transfer fee) / 36 = $286 per month.

What debts can you transfer?

Not all debts can be transferred onto a balance transfer card. So, depending on what debts you have you might not be able to use balance transfer as a strategy.

  • All credit cards can be transferred.
  • Some lenders will allow you to balance transfer a personal loan.
  • Most Buy Now Pay Later debts can't be transferred. (You might be able to if your BNPL debt can be paid by BPAY)

How much can you balance transfer?

How much you can balance transfer will be based on the high-interest rate you will be paying when the interest rate finishes. This may limit how useful it is for getting debt under control as you might not be able to borrow that much.

Balance Transfer Hacks

It theoretically may be possible to balance transfer debts that can't be transferred. You could use an existing credit card to repay a debt and then balance transfer that credit card.

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