Make sure a balance transfer works in your favour

A promotional balance transfer offer might sound tempting, but there are some things to look out for. Here are a few strategies you could consider if a promotional balance transfer offer is on the cards.

Understand the offer and the card

It’s important to know exactly what you’re dealing with when it comes to a promotional balance transfer offer. You should review the terms and conditions on both the offer and the credit card carefully, making note of things like:

• Fees and charges, and when these might apply (including any specific balance transfer fees)
• The start date and end date for the promotional period
• The interest rates that apply during the promotional period for the balance transfer, including to purchases and cash advances
• Any ongoing interest rates, fees and charges that apply once the promotional period ends 
• Any conditions on or impact to interest-free days

Brush up on the basics of balance transfers.

Calculate repayments

If a balance transfer offer has a low promotional interest rate, then to make the most of it, one goal would be to pay off the transferred amount within the promotional period. If there is still a balance on the card at the end of the promotional period, a higher interest rate may apply to this remaining balance. That rate may even be higher than the rates on the original card^disclaimer.

Say the promotional period on a balance transfer offer is 12 months, and you’ve got a $1200 transferred balance to pay off (with a 0% interest rate for this period). Assuming there is no other balance, you make no new purchases or other transactions (such as cash advances) and incur no fees on that card, you’ll need to pay at least $100 per month to make sure you pay off the balance before the promotional period ends^disclaimer.

Remember: the amount you need to repay may be more than the Minimum Monthly Payment shown on your statement (more on this below). Working these figures out before you take up a balance transfer offer may help you decide if the offer is right for you.

Consider setting up a repayment plan to match the offer

To help meet the goal of paying off debt before the promotional period ends, it could help to set up a monthly direct debit or repayment plan^disclaimer. If you’re considering this, don’t forget about interest costs, fees and charges when you’re doing the calculations for a repayment plan and make sure you’re mindful of your other financial commitments before deciding on the details of the plan.

Consider making more than the minimum repayment

If the goal is to pay off as much of the transferred balance within a promotional balance transfer offer period as possible, then more than the Minimum Monthly Payment shown on your credit card statement may need to be paid. Remember, after the promotional period ends, interest is typically charged on what’s left of the transferred balance. So the bigger the balance remaining, the more interest you might pay^disclaimer.

This is another reason why you might like to work out how much you would need to pay each month to clear or reduce the debt within the promotional period.

Consider closing your old credit card or cards

To avoid interest and ongoing fees on the card or cards that the balance is transferred from, it may help to close the old card accounts as soon as possible. Whether or not you will avoid interest and ongoing fees on those cards will depend on the terms and conditions and fees that apply to the cards.

Remember different interest rates and fees may apply to both the card or cards a balance is being transferred from and the card the balance is transferred to. You might want to consider these when making decisions about those cards.

Use your credit cards wisely

It’s important to be aware of the interest rate that will apply to purchases (and other transactions like cash advances) made on the card the balance is transferred to.

Depending on the offer and the card, purchases could be charged a higher interest rate than the one that applies to the transferred balance. The rate that applies to purchases may also be higher than the rate that applied to purchases on your old card or cards^disclaimer.

Because of this, before you start making purchases on a balance transfer card, you might want to check to see that its purchase rate is competitive and you’re getting a good deal.

At ANZ, if you have a credit card that offers interest free periods on purchases, these interest free days only apply if you’ve paid off your Closing Balance (or if applicable, your ‘Adjusted Closing Balance’) in full by the Due Date. Your Adjusted Closing Balance is calculated as your Closing Balance less the sum of any relevant Promotional Plan balances that relate to an Instalment Plan, a Buy Now Pay Later plan, or a Promotional Balance Transfer Plan, plus any instalments due (including instalments previously due which have not yet been paid). If you haven’t paid off your Closing Balance (or if applicable, your ‘Adjusted Closing Balance’) in full by the due date you’ll be charged interest on purchases.

Explore other options

In some circumstances, a balance transfer may not be the best option. There may be another debt consolidation solution better suited to your individual circumstances. If you’re unsure, you could do some research to compare your options or speak to a professional about what’s available.