Balance Transfer Introductory Offers: Are They Worth It?

With so many different balance transfer cards available, the competition with introductory offers has become even stronger than before.

There are many credit cards that offer a period of 0-5% interest for cardholders who switch their debts over and many people who would love the chance to pay off debts without adding to their interest.

But these offers may not be suitable for everyone and the amount of debt, as well as the card features after the introductory offer, should be thoroughly addressed before signing up to a balance transfer option.

Using a credit card calculator like the one provided on the government’s Money Smart website can help work out whether this balance transfer option is worth it.

For example, someone making $200 monthly repayments towards a $5000 credit card debt on a low interest rate of 13% p.a. would clear the debt in two years and seven months, and pay $863 in interest.

Say this debt was switched to a card like the Virgin Flyer credit card, which offers 0% p.a. on balance transfers for nine months before reverting to 20.99% p.a. – the current cash advance rate. At the end of nine months the debt would be down to $3200 and it would take another 20 months to clear it, costing $587 in interest.

While the second option in this scenario may seem better at first glance, comparing the interest costs of $3200 over 20 months shows that the lower interest credit card would only add up to $334 in interest for that period. That means for a larger debt, or smaller repayments, the low interest option could be a better choice.

There are also cards that offer longer introductory periods for balance transfers, like the ANZ Low Rate credit card’s 2.9% p.a. for balance transfers for the first year. Having a low rate like that for 12 months gives people a chance to clear debt completely before dealing with a more standard interest rate.

After The Introductory Offer Ends

It is clear that very low interest balance transfer offer could help some people pay off their debts more quickly, but what happens after the introductory period should also be considered.

The interest rates for balances and purchases and any annual fees should all be considered before signing up for a balance transfer offer.

Even if a credit card has a great introductory balance transfer that helps pay off debts quickly, if it reverts to a much higher rate afterwards it could be hard to use the card for other purchases without interest quickly outweighing the previous balance transfer benefits.

What these cards really highlight is that it is important to consider what kind of credit card use is intended after the debt has been paid off. That way you are saved the struggle of dealing with an inconvenient interest rate and can go on using the same credit card while still staying debt-free.