What is a Balance Transfer?

How it actually works

You apply for a new card that advertises a balance transfer deal, nominate which card (or cards) and how much you want to move, and once approved, the new bank pays out your old card directly. From there you're repaying the transferred amount to the new card at the promotional rate, often 0%, until the promo period ends. Whatever's left after that reverts to a much higher ongoing rate.

Promotional periods in Australia typically run 6 to 30 months, with 12 to 26 months being fairly common for the bigger banks. Offers change often, one major bank has run 0% for as long as 26 months, another closer to 20, so treat any specific number you see advertised as a snapshot, not a permanent feature, and compare current offers before applying. Most lenders also cap how much you can transfer, often somewhere around 80% of your new card's approved credit limit.

A worked example

Say you've got $5,000 sitting on a card at 20% p.a., and you transfer it to a new card offering 0% for 20 months with a 2% transfer fee. The fee is $5,000 x 2%, or $100, added to your new balance upfront. From there, interest on the transferred amount is $0 for as long as the promo lasts. Repay $250 a month for 20 months and you clear the full $5,000 with no interest at all, versus potentially $500 or more in interest over the same period if you'd stayed put on the original card paying only minimums.

The saving only holds if the balance is actually cleared before month 20.

The fee you pay upfront

Most Australian balance transfer offers charge 1-3% of the amount transferred, as a one-off fee added to your new card's balance the moment the transfer happens. On $5,000 at 3%, that's $150. Some cards advertise no transfer fee at all, but usually make up for it with a shorter promo period or a steeper revert rate, so weigh the whole package, not just the fee line.

The revert rate trap

This is the part most people miss. When the promotional period ends, any remaining balance doesn't drop back to a standard purchase rate, it typically reverts to something close to the card's cash advance rate, commonly somewhere in the low-to-high 20s per cent, and on some cards up towards 30% p.a. That can be higher than the rate on the card you originally transferred from. Leave $2,000 sitting on the card after the promo ends at a 26% revert rate and you're looking at around $520 a year in interest, more than a lot of people expect from a card they thought they'd dealt with. Always check the revert rate before signing up, not just the headline offer.

The new purchases trap

The 0% deal applies only to the transferred balance, not to anything new you put on the card. New purchases are usually charged the card's standard purchase rate, broadly in the high-teens to low-20s per cent, from the day you make them, with no interest-free period. Worse, repayments often get applied to the transferred balance first, which means new spending can sit there quietly accruing interest the whole time. The safest move is not to spend on a balance transfer card at all, treat it as a debt-clearing tool, not a spending card.

The minimum repayment trap

Left on autopilot, most cards default you to a minimum repayment, commonly around 2% of the balance or a small dollar floor (roughly $25), whichever is greater, and that number shrinks as your balance does. Paying only the minimum on a $5,000 transfer over a 20-month promo generally won't clear it in time. Work out the fixed monthly repayment you actually need to hit zero before the promo ends, and set that up as your real payment, our Credit Card Minimum Payment Trap Calculator shows exactly how much a minimum-only strategy costs you in comparison.

What it doesn't fix

A balance transfer buys you time, it doesn't fix a debt problem on its own. If spending habits don't change, you can end up with the transferred balance plus a new one building on the old card. MoneySmart's general guidance is to cancel the old card once the transfer goes through, so it can't quietly refill while you're focused on paying down the new one.

Is it worth it?

A balance transfer tends to work best when you've worked out a specific, realistic repayment schedule that clears the balance before the promo ends, you stop spending on the new card, you close the old one, the transfer fee is small enough that the interest saving still outweighs it, and you're not about to need other credit, since the application does leave a mark on your credit score.