Balance transfer fees and limits: how much can you actually move?

Balance transfer fees and limits: how much can you actually move?

Key points

• A credit limit and a balance-transfer limit aren't always the same amount. The provider may restrict a transfer to a percentage of the credit available on the new credit card.
• A one-off transfer fee is often calculated as a percentage of the amount moved. Check whether that fee is added to the new balance and whether it counts towards the transfer or credit limit.
• If a transfer covers only part of what you owe, the amount left on the old credit card keeps its existing interest rate and still needs its own repayment.
• Compare the amount that will actually move, the fee, the promotional period, the repayment needed to clear it and the cost of the balance left behind.

If you're looking at a balance transfer, it's easy to start with the rate and assume your whole credit card balance will move. Your approved credit limit, the provider's transfer cap, the fee and the credit available when the transfer is processed may all reduce the amount transferred.

If $8,000 moves and $2,000 stays behind, you'll still have two balances, two interest rates and at least two required repayments. So, find out how much of your debt the offer could cover before you build a repayment plan around it.

Your credit limit may not be your transfer limit

A provider may let you transfer only part of the credit available on the new credit card. The exact rule is set by the provider and the offer. MoneySmart gives 80% of available credit as an example, however that is not a universal cap.

Suppose you're approved for a $10,000 credit limit and the offer permits transfers up to 80% of that amount (illustrative). You could transfer up to $8,000. If you owe $10,000 on the old credit card, the remaining $2,000 stays there unless you pay it another way.

The approved limit can also be lower than the limit you requested. An application for a $12,000 credit card may result in a smaller limit, or no approval at all. Until the provider confirms the limit and processes the request, treat the amount you hope to transfer as an estimate.

If you're transferring from more than one credit card, list the balances in the order you want them handled. Check whether the provider lets you nominate several accounts and what happens if the available amount runs out part-way through your list. You should be able to find this in the terms, or you can ask the provider before submitting the request.

How does the transfer fee change the balance?

A transfer fee adds to the cost even when the promotional rate is 0%. It is commonly calculated once as a percentage of the amount transferred.

Here is an example using a $9,000 transfer and a 2% fee (illustrative):

The promotional rate may still make this cheaper than leaving the balance on a high-rate credit card, however you're starting with $9,180 rather than $9,000. This example doesn't include annual fees, late fees or interest on new purchases, so add those costs when you compare an actual offer.

Also check how the fee is treated against your limit. Some offers may add it after working out the transfer amount, while others may require enough available credit for both the balance and the fee. Check the terms for the offer you're considering because the method may differ between providers.

Put the amount you expect to move, the transfer fee, promotional period, planned repayment and revert rate into the balance transfer calculator. You'll see what could remain when the promotional period ends.

What happens to the amount that doesn't transfer?

It stays on the old credit card and keeps costing whatever that account charges. The transfer doesn't pause interest on the remaining balance, close the old account or remove its minimum repayment.

Take the $10,000 balance and $8,000 transfer above. If the $2,000 left behind is charged at 20.99%, its first month's interest would be about $35 (illustrative). If you pay only the minimum on the old credit card while putting most of your money towards the new one, that smaller balance could take much longer to clear than you expect.

Write down both plans before accepting the transfer:

• the repayment needed to clear the transferred balance before the promotional period ends
• the repayment needed on the amount left behind, including its ongoing interest and fees

If those two repayments don't fit your budget, the transfer may not give you the breathing room you're looking for. You could ask the provider whether a smaller transfer, a different limit or another arrangement is available. Try not to submit several applications in quick succession to find out, as credit applications are recorded as enquiries on your credit report and may affect your credit score.

Check the amount after the transfer is processed

Don't treat approval as confirmation that every dollar moved. Check the new credit card and the old one once the transfer has been completed.

On the new credit card, confirm:

• the transferred amount
• the transfer fee
• the promotional rate
• the date the promotional period ends
• the rate that applies after it ends
• the required repayment and due date

On the old credit card, check whether the balance has gone down to zero. Interest, a fee, a pending purchase or a transfer shortfall may leave an amount owing. Keep making required repayments until the old provider confirms the balance is cleared. Cancelling the direct debit too early can turn a small residual amount into a missed repayment.

Install WeMoney and connect both credit cards to see the transferred balance, the amount left behind, your other debts and everyday spending in one place. That fuller view makes it easier to check whether the transfer has worked as expected and whether both repayments still fit.

WeMoney uses your connected accounts and credit information to show personalised savings opportunities in the For You section. Depending on your position, these may include credit-card payoff, debt-consolidation or refinancing options. Open the app to see whether an opportunity is available for you, then compare it with the transfer plan above. Potential savings and approval are not guaranteed.

When a partial transfer still makes sense

A partial transfer isn't automatically a failed result. It can still reduce the interest charged on part of your debt, provided you have a workable plan for both balances and the fee doesn't consume most of the benefit.

Use the same period and the same total repayment when you compare your options. Work out what would happen if you split that money between the old and new credit cards, then compare it with leaving the full balance where it is. The promotional rate on its own can't tell you which approach will cost less.

If you're carrying several credit cards, personal loans or buy now pay later balances, a transfer may deal with only one part of the problem. In that situation, compare the transfer with your other options for organising several debts. Look at whether the full arrangement improves your repayment load and total cost, rather than focusing only on the portion receiving the lower rate.

If you can't cover essentials or required repayments now, another credit application may add pressure. Contact your credit providers about hardship support or speak with a free financial counsellor through the National Debt Helpline before deciding what to move.

Sources

• MoneySmart: Credit card balance transfers
• MoneySmart: Choosing a credit card
• OAIC: Information on your credit report

This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.