How to effectively use a "Balance Transfer"

Does an interest free period on your existing credit card balance sound appealing?
If yes then read on...

As a method of effectively managing your credit card debt, finding a suitable card that offers a no or low interest balance transfer rate might just be what you are after. If you have a significant balance on your credit card, cannot repay it within the next 2 months and are being charged interest at a rate over 10% you should definitely considering applying for a balance transfer credit card account. Shifting your outstanding balance from an existing credit card to a new one can work a treat if you are smart - but you do need to be properly informed to avoid falling into some potential traps.

For a savvy consumer, a credit card offering with a zero per cent balance transfer rate can be an effective method of saving money by minimizing interest. To make a balance transfer card work hard for you resist the urge to spend unnecessarily and be in control of your debt. Credit cards balance transfer terms and conditions do vary and it is important to read the fine print. Things to look out for include:

*     Some card issuers make it compulsory and will happily make arrangements to close your existing card account for you, whereas some providers will leave this task up to you
*     Qualifying balance transfers may be limited to a certain percentage of your new card limit, in most instances 95 per cent
*     At the end of the balance transfer period, the debt will generally revert back to the cash advance rate, which in most instances (particularly for low rate cards) is significantly higher than the purchase rate
*     If additional purchases are made on your card, repayments will generally apply to the debt that has a lower interest rate i.e. the balance transfer
*     You may lose the benefit of having interest free days if you make additional purchases on your card
*     Consider the total cost of the cards including interest and annual fees.

The simple rule is: transfer your balance to a card with a 0 per cent balance transfer rate (or close to that) for at least 6 months and minimize using the card for purchases during that period then either repay the balance in full or consider transfer to another card. By transferring a $5,000 balance you can save up to $500 in interest in 6 months alone!

With the large and growing number of credit cards available in the market, searching for the card(s) that best meet your needs can often be a daunting experience but it really does pay to shop around and do your research. There are around 140 credit cards listed in the Infochoice.com.au database – of those cards, approximately 70 offer balance transfers rates, ranging from as little as zero per cent, up to 9.70 per cent and balance transfer terms varying from 4-12 months, with a few providers offering rates "for life".

Check the Infochoice.com.au credit card comparison tables today to find a product that can help you save interest.

Compare credit cards with a balance transfer offer >