Credit card providers attracting spenders with balance transfer deals

The Christmas holidays are an expensive time of the year, which is why sometimes people max out their credit card in December and wonder in January how they’ll pay it off.

Do you fall into that camp? If so, a balance transfer might help you solve your debt problem.

A balance transfer is when you transfer some or all of the debt on your current credit card to a new credit card – and, often, credit card providers will offer incentives to win your business.

For example, Citi, Virgin Money, HSBC, ANZ, Bank of Melbourne, St George Bank and Qantas Money are offering balance transfer interest rates of 0 per cent for at least 18 months.

Please note that this long interest-free period applies only to the existing debt you move across as part of the balance transfer. New debt is treated differently.

Data accurate as of 5 December 2019

How credit card balance transfers can save you money:

Imagine you accumulate a $5,000 credit card debt during the holidays and your credit card charges an interest rate of 18 per cent.

If you made the minimum monthly repayments (which would be $102 in the first month), it would take you 33 years to pay off that $5,000 debt, for a total cost of $17,181, according to the ASIC credit card calculator.

If you increased your repayments to $278 per month, it would take you 21 months to pay off the debt, for a total cost of $5,769.

However, imagine you moved that $5,000 debt to a balance transfer credit card that offered an interest-free period of 0 per cent for 18 months. If you made that same monthly repayment of $278, you would be able to pay off the entire $5,000 debt in 18 months. That would mean you wouldn’t have to pay a cent in interest (although you might be charged a balance transfer fee and/or an annual fee).

Credit card balance transfers can cost you money

Done right, a balance transfer can save you money. Done wrong, a balance transfer can cost you money.

If you take out a new credit card but don’t cancel your old credit card, you might find yourself paying two annual fees instead of one.

If you take out a new credit card and use it to make new purchases, you might find yourself slugged with a fee on your balance transfer and interest on your new debt.

The point is that while a balance transfer might help you solve a debt problem, a balance transfer is not itself a solution to the problem.

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