Find out how a 0% balance transfer credit card can help you save money on an existing credit card debt. Understand what to look for, and what pitfalls to avoid. Understand the best circumstances for making a 0% balance transfer.
Best 0% Balance Transfer Credit Card
Enjoy a range of platinum pivileges with the ANZ Platinum Credit Card which features an amazingly low interest rate on both balance transfers and purchases. You will also enjoy the freedom of higher credit limits, complimentary international travel insurance, your own personal concierge service, personalised rewards program and much more.
- 0% p.a. for 6 months (reverts to 19.24%p.a.) on purchases
- 0% p.a. for 6 months on balance transfers
- $0 annual fee for the first year( $87 thereafter) annual fee
- 20.99% p.a. on cash advances
Featured low rate Balance Transfer Credit Cards:
| Interest Rate (p.a.) | Balance Transfer Rate (p.a.) | Annual Fee | Cash Advance Rate (p.a.) | |||
|---|---|---|---|---|---|---|
 ANZ Platinum Credit Card |
A low interest rate offer on both balance transfers and purchases with a $0 annual fee for the first year. | 0% for 6 months (reverts to 19.24%) | 0% for 6 months | $0 annual fee for the first year( $87 thereafter) | 20.99% |   |
 HSBC Credit Card |
A no annual fee card from HSBC with a low rate balance transfer offer. | 17.99% | 0% for 6 months with 2% handling fee | $0 | 21.99% | |
 Citibank BP Credit Card |
One of the market’s leading low rate options with an exclusive Cashback offer. | 20.89% | 0% for 6 months | $89 | 21.39% | |
 HSBC Platinum Credit Card |
Save with a low balance transfer offer and a low annual fee | 19.99% | 0% for 6 months with 2% handling fee | $129 | 21.99% | |
 ANZ Low Rate MasterCard – Balance Transfer |
Offering a low balance transfer and on-going purchase rate with a low annual fee. | 0% for 3 months (reverts to 13.24%) | 0% for 3 months | $58 | 21.49% | |
 St George Vertigo |
Take advantage of this great low interest rate on purchases and balance transfers offer from StGeorge. | 13.24% | 0.99% for 12 months | $55 | 21.49% | |
 Bank of Melbourne Vertigo Credit Card |
A great balance transfer offer with a low ongoing purchase rate and a low annual fee. | 13.24% | 0.99% for 12 months | $55 | 21.49% | |
 Citibank Clear Platinum Card |
Competitive interest rate on purchases and balance transfers offer. | 11.99% | 2.9% for 12 months | $99 | 21.74% | |
What is a 0% balance transfer?
A 0% balance transfer is the equivalent of a best friend stepping in to offer you a six-month interest-free loan to pay off a debt that’s hurting you with 15% interest charges. Depending on the size of your debt, the relief that such a gesture would bring could be huge.
Anyone who has a credit card debt that is not subject to any introductory low-rate offer will be usually paying anywhere between 10% and 20% interest charges. The exact amount will depend on the type of credit card you currently hold, and what its standard APR (Annual Percentage Rate) is set at. However, even at the lowest standard rate currently available, a 0% balance transfer credit card will still reduce your burden by 10%. Over the course of several months, on a large debt, you can quite easily save yourself hundreds of dollars – money that can then be directed to paying down the actual bulk of the debt.
Of course, no one is suggesting that any credit card provider is looking to become your best friend by offering a 0% balance transfer. Such offers exist to lure your custom away from one credit card company to another. Nevertheless, the upshot works out the same no matter who lends you the money: your interest rate drops to zero.
The process is that you apply for a 0% balance transfer card from a different provider to the one your debt is with, and request on the application form itself that the balance transfer be made – it’s simpler and quicker to apply online. Making the request at this early stage means you will be taking advantage of the full term of the 0% offer, because such introductory offers always begin when the account is opened, not when the customer chooses to make the transfer. Delaying by a few weeks once your card arrives is a few weeks lost at that special 0% rate.
Sounds too good to be true
It does, but provided you behave sensibly and apply a little financial planning to the situation, this can work entirely in your favour. To sound a note of cynicism, and to put it bluntly, credit card providers who offer 0% balance transfers ideally want you to screw up. Yes, they make a little money from your annual card maintenance fee, but the real profit is in the interest charges customers accrue on their accounts. To waive these charges for six months is not good business sense unless they can envisage an upside, which usually comes in the form of the new customer failing to use the card to their own financial ends.
The crux with 0% interest on balance transfers is that this is a time-limited offer, beyond which the interest rate charged on the transferred amount reverts to the regular purchase interest rate on the credit card. In some cases, it may even revert to the cash advance rate for the card, which is rarely less than 20% (check the fine print!). This is where your financial planning comes in; that you budget effectively and manage to pay off your debt before the revert-to rate kicks in and your new credit card provider assumes the same mantle as your old one had.
The other choice that people often make is that they become credit card tarts, having no intention of paying down their balance in full because they are simply intending to move their affections (and their debt) onto yet another 0% balance transfer card when the first offer expires. This can work, but not as an ongoing behaviour because providers can get wise and block future card applications when they realise what you’re up to. Tarting also creates the dangerous precedent of not seeing it as a priority that your debts are paid off as soon as possible.
Before we move any further, it’s important to establish if your circumstances – and even your character – warrant you venturing down the 0% balance transfer path. These offers will not suit everyone, and there is no point making an application just because 0% seems a nice figure. It is not sufficient to say that anyone with a debt on another credit card should make a 0% balance transfer. Balance transfer deals need to be matched to the size of the debt and the genuine likelihood that you will be able to pay it off in full within the offer period. Otherwise it is like pouring a litre of water into a half-litre glass; when you’ve finished pouring, you still have half the water to mop up again.
How Do 0% Balance Transfer Credit Cards Work?
You can save a lot of money by using 0% balance transfer credit cards if you have acquired a large balance on another high-interest credit card . This article will show you how these cards work, and how you can save the most money by using them.
If you have a credit card with a high interest rate you can transfer the balance over to 0% balance transfer credit cards and not have to pay any interest for a specified time. You will be saving a lot of money because you will not have to worry about paying any more compounded interest during this time frame. You can make a budget based on how much time you have to pay the amount and start making regular payments. Knowing that you have no extra interest to factor in makes it easy to work out an easy payment schedule.
Problems with 0% balance transfer credit cards:
The problem with 0% balance transfer credit cards is that this low rate is only offered initially. After a number of months the 0% rate will go back up to a higher interest rate. The credit card companies know that the high interest rate will kick back in at a later date, and at that time you will be one of their customers. That is how they get you to switch and build up their own customer base.
You can work with this by making sure that you pay off most of the debt within a certain time frame. You will have to maintain good budgeting practices, or switch over to another 0% offer with another company, after the time period has expired.
Another problem with these cards is you must pay a transfer fee, which is usually about 3% of your transfer balance. This is paid to the new credit card company offering the 0% rate. Some companies do offer something called ‘capped transfer fees’, which means that the fee will not be over a certain amount, as specified by the company, no matter how large your balance is
When you examine how much money you can save in interest rates by transferring your balance over to 0% balance transfer credit cards, it is worth paying a small fee. Just remember to factor in the fee as you are working out your budget.
If you don’t have a large balance to transfer, you may be able to make use of something called ’stoozing’. This is like a short-term loan with a 0% interest rate because the 0% credit can be moved over to one of your bank accounts. You will have to check the terms and conditions on your card to find out if your card issuer offers this service.
If it is offered you can use this money like you would a loan and start making monthly payments in order to clear up the debt. You may also choose to put the money into a savings account that offers a high interest rate while making only the minimum monthly payments. This will allow you to save up some interest using your savings account, and then repay all of the debt before the 0% time period ends.
Stoozing can be risky if you have a hard time budgeting your money. If it is not repaid by the time the 0% offer has ended, you will have lost the benefits you received from the interest built up in the savings account. If you are quite diligent with your money then this is an opportunity for you to earn a bit of extra cash using 0% balance transfer credit cards.
When 0% balance transfer cards work
When you are realistically able to clear the debt inside the offer period. A month over may not matter too much, especially if the revert-to rate isn’t too high, but the aim should always be to clear the debt in full. This is not just good for this particular debt, it is a good way to move forward generally with your finances. 0% balance transfer cards offer the consumer the opportunity to wipe the slate clean, and every effort should be made to do just that.
When you’re willing to become a credit card tart. Discussed earlier, this is a fairly popular approach but there are dangers. Credit card websites that encourage this behaviour or that actually think it’s amusing are giving out entirely the wrong message. To get away with this behaviour, you need to have a very good credit rating to begin with, and you must be prepared to see it damaged. Having said that, personal finances do not always allow a swift reduction of debt and this sort of shifting on of credit card debt from one 0% balance transfer card to another may be the only option for some people who are genuinely struggling to keep pace. At the very least it provides a bit of breathing space in which to accumulate as much funds as possible in the knowledge that they will not be reduced by any interest charges.
When 0% balance transfer credit cards don’t work
When you have a large balance that will take significantly longer than the offer period to repay. Actually, this is not always such a problem if the revert-to rate on your new card is less than or comparable to the rate on your old credit card where the debt originally came from. There are certainly cards on the market offering six month 0% balance transfer deals and perfectly reasonably regular purchase rates (the revert-to rate). The problem really exists when the 0% offer is on a card with a far higher rate of interest than you were initially paying, and you have a large amount of your debt left at the end of the offer period, and you are not in a position due to your credit score to shift that remaining debt onto another 0% card. If your debt is too large to pay off in time, then you should really be looking at a twelve month offer (2% is good for these), or even a life-of-the-debt balance transfer (around 5% to 7%), although these are more common on platinum cards so may be out of the reach of some people due to income requirements.
When you intend to make purchases on your 0% balance transfer credit card. The only time when you should be making purchases on a balance transfer credit card is when that card also has a 0% purchases offer that runs concurrently. If the offer is for balance transfers only, then you should NEVER make any purchases on your new card until your balance transfer is fully repaid. This is because of the fine print lurking within all credit card Terms & Conditions stating that the provider can allocate your repayments in whatever way they choose. In simple terms this means that they always use your repayments to pay down your cheapest debts first – such as your 0% balance transfer – thus keeping your more expensive debts – such as you purchases or cash advances – hanging on accruing interest. If this happens, you can easily see how the value of your 0% transfer can quickly be eroded by the untouched interest charges on any purchases you’ve made that are backing up behind your balance transfer.
When you want to take cash advances on your credit card. This is a bad idea at the best of times, because cash advance interest rates are usually around 20% and are never included in any special introductory offer, and interest is applied the moment the transaction is made. Where 0% balance transfer credit cards are concerned, they are especially disastrous, because thanks to the rule stated above, these cash advances are the ones that go to the very back of the repayments queue, behind your balance transfer and any purchases you may have made.
When your credit rating is lacking. Applying for any credit card requires a good credit rating, and 0% balance transfer credit cards are no different. Applying for a credit card that you are unsuited for because you do not satisfy the criteria in some way will mean you are rejected and this will be reflected in your credit history. The effect is that your credit rating will suffer. For this reason, is it vital that no matter what kind of credit card you apply for, you assess your chances of being accepted. If that means paying $30 or so to take a look at your credit history, then it’s money well spent.
Comparing 0% balance transfer credit cards
It’s probably best that Australian credit card consumers don’t take a look at any UK credit card website. 0% offers in Australia are for no longer than six months, and this has been an industry standard for a good while. By comparison, 0% balance transfer credit cards in the UK can carry offer periods of up to sixteen months. Now that’s been said, you won’t have to look at a UK website because the ugly truth is known to you.
The worse news is that there are a lot less 0% balance transfer deals around now than there were a few months ago. Twelve month deals are now more common, and these are currently available from 1.99%. Although it’s always worth looking around for a 0% balance transfer credit card with longer than six months (because the market is pretty fluid), you should accept that it’s likely to be a fruitless search. Six months remains the standard offer period for a 0% balance transfer.
Assuming you have lined up a few candidates in this category, what else should you be looking for to ensure you choose the right card?
The length of the offer period – Some 0% balance transfer credit cards may offer less than six months, but this may be compensated by another great feature on the card, so you will need to weigh up what is most important to you.
The regular purchase rate (the revert-to rate) - This has already been discussed, and the important point is to find one as close to 10% as possible. This is probably going to be the rate that any remaining amount is charged at, so it needs to be low.
The fine print – You must read this to know exactly what you’re getting into. Make sure that the revert-to rate is not set at the cash advance rate, or that there aren’t other stipulations that make your 0% balance transfer less attractive than you first thought.
The annual fee – On a standard credit card (not gold or platinum), you may be looking at an annual fee of around $40 to $50. It may be more or less, but if you’re not dealing with a more prestigious gold or platinum card then you need to make sure the provider isn’t grasping back some dollars through the annual fee. By the way, don’t rule out the possibility that you may get a 0% deal with a zero annual fee. Remember that the market is always changing, and providers sometimes throw such spanners into their competitors’ works.
Using your 0% balance transfer card wisely
As mentioned earlier, you need to apply for your balance transfer(s) on the credit card application form to take advantage of the full term of the offer. This will be subject to change depending on the credit limit you are offered, and because you will not be allowed to transfer a balance that is more than 95% of your credit limit. If you do delay in making your 0% balance transfer, not only will the effective value of your offer be reduced, you may even find that the offer is withdrawn if it is unused after as little as 30 days.
Budgeting is essential to ensure that your transfer is paid down in time, and this is something you must be disciplined about. The extra money you save on interest charges should not be seen as a gift fund; it is money that should be used to help reduce your debt as quickly as possible.
Remember that 0% balance transfers do not absolve you from making your minimum payments on time. Even if your plan is to save the full amount to pay off at the last minute, you still have to satisfy the minimum payment demand each month. Failure to do this will open you up to penalty charges, which will negate some of the value of getting a 0% balance transfer card in the first place.
And the cardinal rule: avoid purchases on your new 0% balance transfer credit card unless you also have a 0% purchases offer that runs for the same period.
Posted on Thursday, April 8th, 2010 at 12:11 am
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