Credit card balance transfer is of great importance if you want to manage your financial needs timely. Is it a good idea to do a balance transfer on a credit card in Australia? Even though credit cards offer a lot of benefits to the users but they also come with debt. It is much easier to spend money but it is quite hard to pay it all back and if you have adopted the habit of spending a lot then paying back your credit card debt is going to be extra hard for you because you are not only going to need money but also will to pay it all back and not acquire any more of it. One of the best way to pay back your credit card debt it by transferring your balance to a new credit card so let us look at it in detail.
What is a best credit card balance transfer?
Credit card transfer balance is a way of transferring your existing credit card debt to your new credit card debt with better terms and conditions and a lower interest rate. The lower interest rate on the new credit card is only for a certain period of time thus you get a chance to pay it back without the interest occurring. In most cases the interest rate is 0% for at least 12 months but after the end of the bonus period revert rate is higher as compared to the previous credit card. Thus it is important that you pay the debt in the given grace period.
Revert rate is usually high. In Australia the rate is somewhere close to 21% per year mostly 21.99%. Whereas as the 0% interest period lasts between 6 months to 26 months so you have to set a target to pay it all back in the time frame based on the type of credit card you choose.
Pros and Cons of Credit Card Balance Transfer
Just like everything else, credit card balance transfer also has certain pros and cons. These pros and cons allow you to decide whether or not you should choose the option or not. So let us look at them in detail so that you can make your decide rationally.
Some of the benefits that you will get from credit card balance transfer are;
1. Low credit card interest rate
Transferring your credit card debt to a new credit card with better terms and a 0% interest rate for a certain period of time will decrease the amount of debt you original would have to pay if you used your existing credit card. This allows you to even pay you entire credit card debt.
2. Credit card with better terms
There are certain hidden fees that are attached to your existing credit card such as annual fee or the transferring fee. You can get rid of them by transferring your money to a new credit card with better terms and conditions such as lower annual fee charges and etc.
3. Put your debt in one card
Most people have multiple credit cards. Keeping track of all of them can be hard and especially when it comes to paying debt, one has to consider different interest rate thus you can consolidate all your debt on a single new credit card with 0% interest rate for a certain period and pay it gradually.
4. Set a time frame for the payment of the debt
Some people find it hard to pay back the debt because they can’t get themselves to stay motivated. But when you get a new card and you know that there would be no interest for at least 6 month to 18 months then you will be motivated to pay back the debt in the given time frame.
Cons for Australian Card Balance Transfer
Even though credit card balance transfer looks like an easy and effective way to pay off your credit card debt but there are certain drawbacks that are associated with it as well. So let us look at them as well before your transfer your debt.
1. Higher interest rates
Only individuals that are determined can pay back their debt in the no interest time period. If you fail to pay back the debt then you will be charged a higher interest rate. In Australia revert rate is 21.99% or 21.74% which is way higher so think rationally before making any decisions.
2. Transfer fee
There are hidden fees that are attached to the balance transfer. You will have to pay the annual fee that ranges between $100 to %500 for most credit cards but along with that you also have to pay transfer fee which is 1% or 2% of the total amount that you will be transferring from other banks. So balance transfers are not entirely free.
3. Negative affect on credit score
The worst drawback of credit card balance transfer is the negative effect on your credit cards core. Every time you transfer your debt from one card to another card, your credit score might get affected. It mostly depends on the new credit card you choose and the amount of credit that is available. Timely payments should solve the problem though.
4. Chances of acquiring more debt
Having two credit cards instead of just one can encourage you to make more purchases especially if you are a shopaholic. So you will need to restrain from making any further purchases so that you don’t increase your credit card debt.
Conclusion for Credit Card Balance Transfer
There is no one answer to the question whether it is a good idea to do a balance transfer on a credit card in Australia or not because the answer varies from person to person. If you are determined enough to pay back your debt in the low interest rate period that you should most probably choose the option but if you are not sure then it is better to refrain from it because higher interest rates at the end can lead you to bankruptcy as well. Plus it also depends on the amount of debt you have so keep all the pros and cons in mind before you make a decision because it is going to affect your finances in the long run.