How Do Balance Transfer Cards Work?
Smart Money

How Do Balance Transfer Cards Work?

Last updated

Understanding how balance transfer cards work is the key to making them work for you. In this guide, we’re going to look at all the info you need to know as you compare balance transfer cards, including where you can transfer a balance from, how much you can transfer, how much you’ll need to pay off each month, and what to do with your old card.

Where can you transfer a balance from?

While some card providers only allow balance transfers from other credit cards, others provide a much wider scope. Westpac, for example, allows transfers from hire purchases, store cards and personal loans onto its balance transfer credit cards.

And transfers from credit cards? If you want to take advantage of a balance transfer offer, you will need to choose a different provider from the one you are already with. Card providers don’t allow promotional balance transfers from within their own bank or banking group. So, for example, you couldn’t take advantage of a balance transfer offer from ANZ, if the balance you want to transfer from is another ANZ card.

How much can you transfer?

When it comes to balance transfers, there will usually be a minimum and maximum amount you can transfer. While the minimum amount will typically be presented as a dollar amount – for example, $200 – the maximum amount will be a percentage of your approved credit limit.

Let’s say you are approved for a credit limit of $5,000. Your card provider allows for a maximum balance transfer of 80% of that credit limit. That means you can transfer up to $4,000 from your existing card account onto the new card.

Why do card providers place these limits on transfers? A card provider will do this to protect both itself and you, as its customer. If you transfer 100% of your approved credit limit and don’t pay any of it off within the introductory period, you will be forced over that credit limit as soon as interest starts to accrue. This would result in fees, which would also be added to your balance, creating even more problems.

What happens after you are approved?

When you apply for a balance transfer card, you will either be asked to provide details of the balance transfer during the application process, or once the card has been issued.

If you provide details of the balance transfer during the application process, your new card provider will typically arrange the transfer within a few business days of approval. If you have to wait for your card to arrive in the mail, this process will obviously be delayed by the time it takes for your card to be created, processed, and sent out.

Either way, you can track and manage your transferred balance using your card provider’s app or online banking. This should allow you to manually transfer your monthly repayments, or set up an automatic direct debit.

How much do you need to pay off each month?

It’s a common misconception that on 0% balance transfer cards you don’t have a minimum repayment each month. This is not the case. Your card provider will tell you how much you will need to pay as a minimum repayment each month, represented either as a dollar amount or a percentage of your total balance.

However, paying the minimum is not a good idea. To make the most of the offer, work out how much you will need to pay off each month to clear your transferred balance within the introductory period.

Can you use your new card?

Some cardholders choose not to spend on their balance transfer card, as it allows them to focus on paying off their transferred balance without throwing new spending into the mix. However, you can spend on the new card if you wish. Just bear in mind, there are no interest free days on new spending, so you will have to work harder to pay off your transferred balance, your new spending, plus any interest that new spending accrues.

Do you need to cancel your old card?

It’s entirely up to you whether you choose to close your old card accounts. If you think you may be tempted to spend on the old cards, it could be a could idea to close them to avoid that temptation. Alternatively, if you want to keep the card, you could choose to reduce the credit limit to reduce the temptation to spend.

Founder - Roland B Bleyer

Roland Bleyer

Founder of Roland has extensive knowledge about credit cards in New Zealand. Known as a credit card expert, he has been featured on tv and in various publications.
Help us improve

By submitting this feedback you agree to our privacy policy.

My credit card is not listed

By submitting this form you agree to our privacy policy.