If you are paying off a large balance on your credit card, you may benefit from transferring this to a new card. Most of the major credit card companies such as Aussie Home Loans, Citibank, ANZ and NAB offer introductory interest-free or low-interest periods on balance transfers, normally for the first six months. Other costs such as annual card fees may also be waived during this time.
These deals can save you a substantial amount of money if you are able to pay off the balance during the specified period. But be sure to read the small print, and compare the longer-term pros and cons of transferring your balance to a new credit card company.
In particular, you should find out what the standard interest rate will be at the end of the introductory period. You should also check whether the special introductory rate only applies to the balance transferred, or to new purchases and cash advances, otherwise you could end up paying a higher rate of interest on these than on your old card. Find out what the annual fees are, whether there are interest-free days if you pay off your bill in full each month, and what the penalties are for late payments. You may find that the credit card company cancels the special introductory interest rate if you pay your bill late.
If you can pay off the balance within the introductory period, the savings can be substantial. For example, if you transfer a balance of $5000 from a card with an interest rate of 10% per annum and an annual fee of $50, to a card with a six-month interest-free period and no initial annual fee, you could save $300 if you pay off the balance within the introductory period.
However, if you were unable to pay off any of the $5000 balance within this period, and the card reverted to an interest rate of 18%, over the following twelve months you would have to pay $900 interest on the balance alone, plus any annual fee that became payable, not counting any additional interest on new purchases or cash advances. In comparison, you would only have been charged $550 during this twelve month period if you had kept your old credit card account.
If you are considering transferring your balance you should always check that the company will settle your existing balance immediately at the time your new account is opened, and that they will give you a credit limit which is sufficient to cover your whole outstanding balance, otherwise you may find yourself paying two sets of interest, cancelling out any saving that you might have made.
If you have a large credit card debt which will take a long time to pay off, you might save more money by transferring it to a personal loan. And even if you can save money by transferring your balance, don’t switch between credit card companies too often as this may have an adverse effect on your credit rating.