Balance transfer credit cards: how they work and the traps to avoid

How a balance transfer works

You apply for a new card and ask for some or all of your existing card debt to be moved to it. The new issuer pays out the old card and the debt becomes a balance transfer on your new account. Moneysmart lists the terms to check: the promotional rate (0% or a special low rate), the promotional period (usually 6 to 24 months), a minimum monthly repayment you often must make on time to keep the rate, a maximum transfer amount (for example, a percentage of the new card's limit), and a one-off transfer fee calculated as a percentage of the amount moved.

ASIC's 2024 review of 13 lenders found most offered 12, 18 or 24 month promotional periods, and 85.7% of balance transfers had a promotional rate of 0%.

The revert rate: what happens when the 0% ends

Whatever is left at the end of the promotional period starts accruing interest at a higher rate. ASIC found that in most cases this is the card's standard purchase rate, but it can be a different rate, so check the key facts sheet for the exact revert rate before you apply. For context, the RBA's average standard credit card rate was 20.99% in August 2026.

Moneysmart also warns that missing a required repayment during the promotional period can cancel the low rate early, and the new rate may be higher than your original card. Under the Banking Code of Practice, banks have had to give 30 days' notice before a balance transfer period ends since 1 July 2019, but don't rely on the reminder: set your own.

What it costs: a worked example

Hypothetical figures: you owe $6,000 on a card charging 20.99% (the RBA average standard rate, August 2026) and can pay $300 a month.

Spending on the new card: the most common trap

Moneysmart warns that purchases on your balance transfer card usually attract the purchase rate, which is much higher than the transfer rate, and that your repayments may go to the new purchases instead of the transferred balance.

That second point is the law working as designed. The National Consumer Credit Protection Act requires a card issuer to apply your payment first to the closing balance on your last statement, and within that balance to the part charged the highest interest rate first (section 133BQ). With a 0% transfer on the card, your repayments clear the higher-rate purchases before they touch the transfer, so the transfer shrinks more slowly than you might expect.

Interest-free days are the other catch. ASIC found that 4 of the 13 lenders in its review did not give an interest-free period on new purchases while a balance transfer was on the card, so those purchases were charged interest from day one. The simplest fix is to not use the card for spending until the transfer is cleared.

Are balance transfers bad for your credit score?

Applying for the new card is a credit enquiry, and Moneysmart notes that applying for a card or a balance transfer is added to your credit report; several applications in a short time can harm your score. Enquiries stay on your report for five years. The transfer itself isn't a black mark, and paying the debt down on time helps your repayment history. What hurts is repeated applications and rolling debt from card to card. See how credit scores work in Australia.

Does it work? What ASIC found

ASIC's 2024 credit card review found that 74.2% of consumers who made a balance transfer reduced their total credit card debt, and 52.5% cut it by at least half. But around 11% ended up with over 50% more card debt after the transfer, and many people transferred more than once. Consistent repayments made the difference.

So before you apply: cancel the old card once the balance moves (Moneysmart suggests it, to avoid building new debt), set up an automatic repayment big enough to clear the balance before the period ends, and keep the new card for the transfer only. If you're struggling to make repayments at all, a transfer may not be the right tool; Moneysmart points to free financial counselling on 1800 007 007.