The 4 Hidden Dangers of Balance Transfer Cards

According to our research on the financial habits of consumers around the country, more than 3 in 5 Australians risk a lifetime of revolving debt on their balance transfer cards. Many simply weren't aware of all the terms they agreed to, or how to adapt their spending patterns to make the most of their newly consolidated debt.

Like any tool, balance transfer cards can offer significant financial relief when used well, but the data we collected suggests consumers aren't being properly informed about the pitfalls. This, along with the nation's combined credit card debt of $32 billion shows a lack of education and transparency around balance transfer cards --- which is benefiting the banks while consumers continue to struggle.

So, here are the 4 hidden dangers of balance transfer cards, and how you can work around them.

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1. Hidden fees and penalties

Balance transfer cards usually come with additional administration (handling) fees, and transfer fees. While these fees do get listed in the product disclosure statement, they may be buried in the fine print, along with other complex terms and legal-speak.

Of the balance transfer cardholders we surveyed, 57% didn't know they would be charged a transfer fee, 65% weren't aware they would be switched to a higher interest rate after the initial sign-up period (revert rate), and 57% didn't know they would be charged interest on new spending. Consider using a comparison site to find the best balance transfer deal. These sites are designed to present information in a standardised, easy-to-read format, uncovering the essentials of all the products they list.

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2. Harsh revert rates

After an introductory interest-free period, a balance transfer card typically reverts back to a standard rate that may be higher than the rate on your original card (we found revert rates as high as 22%). According to our research, almost 1 in 4 Australians did not pay off their balance before the interest-free deadline, translating to hundreds of dollars in additional debt.

If you're still within your introductory period, run your remaining balance through the ASIC Interest-free deal calculator to work out how much you need to pay to avoid being hit with heftier interest rates. Unfortunately, if the numbers still look daunting, it may be time to leave your current card provider for someone that offers a better interest rate, a longer interest-free period, and more manageable monthly repayments

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3. The temptation to spend

Clearing the debt from your old credit card can sometimes lead to a false sense of security. Our research found that 67% of consumers who took out a balance transfer card kept their old card, with more than 1 in 10 taking out a new credit card to pay for everyday purchases.

Cards were designed to make spending simple --- so simple, we almost don't think about the fact we're doing it. It's too easy to give in to temptation when a zeroed-out credit card is so readily available. Once you've consolidated your debt on a balance transfer card, cancel your old cards as soon as you can, and commit to paying with cash for a while. Make "swipe and forget" a thing of the past. Your bank balance will thank you.

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4. Juggling yet another card

Even if you're a disciplined shopper, skilled at resisting temptation, you may still find yourself under pressure from juggling multiple cards, repayment amounts and interest rates. Modern life can be punishingly busy, especially for working professionals and families with school-aged children. All it takes is a handful of missed paperwork to set you back a couple of months while those payment deadlines tick over.

Budgeting guides, software and personal finance apps can go a long way to helping you keep on top of your debts, nothing beats reducing the number of providers you deal with each month, sofind out how a debt consolidation loan can help you now.