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New year, old debt? The dos and don’ts of credit card balance transfers
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By MyBudget Editor

If you’re starting the New Year with a credit card hangover, now is the time to put a debt-busting plan in place. In partnership with money comparison site Mozo, we’re pleased to bring you the dos and don’ts of credit card balance transfers.

From spoiling the kids to having another serve of pudding, Christmas and New Year is all about indulging. But for many, the festive season brings on more than just a sugar rush. According to Roy Morgan Research, Australians were expected to spend a whopping $52.7 billion during the festive season and, for many shoppers, credit cards are their weapon of choice.

The good news is that the New Year is also the perfect season for getting out of credit card debt!

‘Tis the season for balance transfer credit cards

One debt-crushing option that might be available to you is a ‘0% balance transfer credit card.’ With a balance transfer credit card, you get to move your existing credit card balance—where you could be paying an annual interest rate as high as 20% or more—to a new credit card where, for a set period of time, your balance is subject to an interest rate of 0%.

Instead of your repayments being eaten up by interest charges, this means that 100% of your repayments can go towards paying down your credit card balance.

Sounds awesome, right? Balance transfer credit cards, when used properly, can be a good way clear debt, but there are still some dos and don’ts you’ll want to be aware of before signing on the dotted line. MyBudget has partnered with money comparison site Mozo to bring you these credit card balance transfer tips.

Let’s start with the dos…

Do create a budget so you know what you can afford to repay

Before signing up to a balance transfer card, it’s best to first work out what you can afford to repay. After all, there’s little point in getting a new credit card with no goal in mind of how you intend to pay it off. Your budget should outline how much you owe and how much you’re able to repay each month until you’re debt-free.

Free online calculators, like Mozo’s Credit Card Debt Payments calculator, can give you an estimate of what your debt-free timeframe might look like.

Do compare your balance transfer options

Balance transfer deals are usually first-out-the-gate in January. It’s a chance for banks to gain a new customer, and it’s your opportunity to snag a great balance transfer deal.

Because you’ve worked out your budget, you’ll know what kind of time period to look for in a balance transfer deal. While some offers can be as long as 24 months, if you need only nine months to pay back your debt, we recommend choosing a deal that has a 12-month interest-free window.

Do avoid paying transfer fees, if possible

Keep in mind that some balance transfer cards come with upfront transfer fees. This is the cost to move your balance over to a new card and it’s usually one to three percent of the outstanding balance.

If you can avoid paying a transfer fee, do. At the time of writing, there are 67 balance transfer cards in the Mozo database that don’t charge any transfer fee.

Do understand the revert interest rate

What happens when the honeymoon period is over? When comparing deals, make sure you keep an eye on the revert interest rate. When the interest-free period ends, this will be the interest rate that applies to any remaining balance on the card.

Some cards will revert to the cash advance rate, which can be as high as 20+% per annum, while other deals will revert to the standard purchase rate for that card.

Do break up with your old card

Once you’re approved for a new card and the funds get transferred, do yourself a massive favour and cancel your old credit card immediately. Other than the fact it’ll keep you from using the old card, you’ll also save a few bucks by not having to pay the annual card fee.

Now for the don’ts…

Don’t spend on the new card

When it comes to credit cards, the law requires that your repayments must first be applied to that portion of the balance attracting the highest rate of interest. In other words, if you make purchases on the new card, your repayments will go towards repaying the purchases first and your transferred balance second.

If you do transact on the new card, make sure that you increase the amount of your repayments to cover your new purchases, as well as the repayments towards your old balance.

Don’t apply for multiple balance transfer credit cards

It’s understandable that you’re determined to rid yourself of debt, but it pays to be patient during the application process. Every application you make for credit is recorded on your credit history and applying for multiple credit cards can have a negative effect on your credit score.

The best approach is to shop around before you apply for a deal. You can search and compare balance transfer offers based on your debt amount, desired balance transfer period and fees on free comparison sites, such as Mozo, without putting a mark on your credit history.

Don’t repeat history

Once you’ve paid off your credit card debt (congratulations!) you can now put those repayments towards building up your savings. Adopting new saving habits and crafting a budget will help ensure you stay debt-free and you’re able to pay off your credit card balance in full every month.

Would you like help getting out debt? Call MyBudget on 1300 300 922 or enquire online to get your free customised debt plan.


About our guest blogger 

Kirsty Lamont is a money expert and director at financial comparison website mozo.com.au You might also know her from regular TV spots where she provides commentary on all areas of personal finance. She is passionate about helping Australians make more informed money decisions, from blasting debt to building their savings.

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