How do Balance Transfers Work?
Smart Money

How do Balance Transfers Work?

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A balance transfer is designed to help you consolidate debt, providing you with a lower rate on your transferred balance, so you can pay it off faster. Depending on the card you choose, you could transfer a balance from multiple sources, including another bank’s credit card, store cards, hire purchases and even personal loans.

On each balance transfer offer there is an introductory rate, which is the rate that will be applied to your transferred balance for the length of the introductory period. Over that introductory period, you can work on paying down your balance as you pay less in interest. At the end of the introductory period, if there is a balance remaining, it will start to accrue interest at the card’s purchase rate or cash advance rate, according to the card’s terms.

Glossary of Terms

Here are some of the most common terms you will come across when comparing balance transfers. Understanding what each of them means should allow you to compare the options more efficiently, to then choose the offer that works best for you.

  • Introductory Rate: This is the interest rate that will be applied to your transferred balance, starting at 0% p.a.
  • Introductory Period: This is the length of time the introductory rate will be applied to your transferred balance.
  • Revert Rate: This is the rate that will be applied to any balance left unpaid at the end of the introductory period.
  • Setup Fee: This is the fee that is charged by the card provider to carry out a balance transfer. While some providers might charge a setup fee, it’s not common in New Zealand.
  • Annual Fee: This is the fee charged each year by the card provider for the use of the card.
  • Transfer Limit: This the total amount you can transfer, usually expressed as a percentage of your credit limit, for example 95%.

How do you find the best balance transfer offer?

When comparing balance transfer deals, you obviously want to find the best one for you. So, what should you keep in mind as you compare the options?

Is this a card for the long term or short term?

Some people apply for a balance transfer card just to make use of its balance transfer offer. Once their balance transfer card is paid off, they close the account. Others utilise the balance transfer offer, but keep the card in the long term. If you only plan to use the card for its offer, focus on what the offer gives you. If you want to keep the card, you will need to consider the offer, on top of what else the card provides – and costs.

Where are you transferring a balance from?

Card providers will typically only apply their introductory rate to balance transfers from other banks. If you want to transfer a balance from store cards, hire purchase agreements and personal loans, make sure the new provider allows this.

How much can you save?

You obviously want to use the balance transfer offer to save as much as possible. One way to see how much you could save is by using a balance transfer calculator. This allows you to compare each offer, to see how much you could save by transferring your balance.

How much do you need to transfer?

Some card providers place a limit on the amount you can transfer. This is usually a percentage of your approved credit limit, and can range between 80% and 95%.

What does the balance transfer offer?

To make the most of a balance transfer offer, you will usually look for one that is as low as possible, offered over the longest period of time. However, you may find ones that have a higher balance transfer rate applied for the life of the balance transfer, which may allow you to save more in interest if you know you will not clear your balance over a shorter introductory period.

What happens after the introductory period?

Some balance transfers revert to the card’s purchase rate, while others revert to the much higher cash advance rate. If you think you may not pay off your transferred balance, think about how much it will cost you after that introductory period.

What happens when you apply for a balance transfer?

When you apply for a card with a balance transfer offer, you will usually be asked to provide details of the balance transfer on application. Alternatively, you may be able to request a balance transfer after application, but be aware there may be a window in which you must make the request in order to get the introductory balance transfer rate.

Once you have provided the details of the balance transfer and it has been approved, your new card provider will arrange the transfer. The transfer process may take up to two weeks, so be aware of any further payments, fees or interest costs that may occur on your old card in that time. You may need to cover these separately – and if you want to close that old account, you will need to make that request yourself.

How do you make the most of a balance transfer?

Balance transfers can be awesome – but only if you understand how to make the most of them.

  • Don’t just pay the minimum: With a balance transfer, you will be required to pay at least the minimum repayment each month, which is typically 2-3% of the balance. However, if you only pay the minimum, you will not clear your balance by the end of the introductory period.
  • Set up a repayment plan: Create a repayment plan that allows you to pay off an affordable amount each month, to clear the balance before the introductory period ends. Setting up automatic payments after payday can help with this.
  • Understand how payments are applied: When you make a payment on your card, find out where that payment goes. For example, ANZ applies payments to the transferred balance first before any purchases or cash advances, which means any new spending will accrue interest until the balance transfer has been paid off. On the other hand, BNZ applies payments to the balance attracting the highest interest first, so payments would go towards cash advances and purchases before balance transfers.

Pros and Cons

  • Balance transfers can help you save on interest.
  • Balance transfers can help you pay off your debt faster.
  • Balance transfers can consolidate your debt, making it easier to deal with.
  • Balance transfers don’t work for everyone: you need to be disciplined to make the most of them.
  • Balance transfers can encourage more debt if you keep spending and don’t pay off what you owe.

Understanding what balance transfers offer and how they work allows you to choose the best offer, to then make it work for you. Compare the deals on and see how much you could save by transferring your balance today.

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.
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