You can refinance a home loan to a new lower rate loan to save yourself money on repayments, but did you know you can also refinance your credit card?
Refinancing your credit card is also known as a balance transfer. This is where you move your current credit card balance from one credit card provider to another to get a brand new credit card.
The latest Reserve Bank of Australia (RBA) credit card statistics show that the average credit card debt (total balance accruing interest) is $1,978 amongst over 13 million active credit card accounts.
And as Australia potentially heads towards a recession, the rate of debt accruing interest could grow as struggling Aussies start reaching for their cards more while paying them off less.
This is ill advised, and you should always aim to pay off a credit card as soon as possible, but as thousands of Australians continue to face financial uncertainty due to the impacts of the COVID-19 pandemic, switching to a lower rate credit card, or even a temporary 0% interest card, may help give you some much-needed financial breathing room.
Rules of credit card refinancing
Not every credit card will allow you to refinance to it. You’ll need to ensure the new credit card’s terms and conditions allow for balance transfers.
Simply hop onto the new credit card provider’s website and check out any credit cards you might be considering. Then do a search for balance transfer. This may be hidden in the product disclosure statement or the terms and conditions, so you’ll have to do a little digging if it’s not immediately obvious.
If you’re still struggling to find information, call up said credit card provider or even visit your local branch and ask for assistance.
If your ideal new credit card does not allow for balance transfers, unfortunately you may need to do things the old-fashioned way. This involves paying off your existing credit card balance, closing the credit card account and then potentially making the move.
Benefits of balance transfers
Traditionally, a balance transfer credit card offers lengthy interest-free periods to allow card holders with outstanding debt time to pay off the balance.
However, refinancing your credit card is not just for customers with debt. You may also refinance to get a lower rate and/or take advantage of a range of benefits and perks.
Some of the benefits and perks could include:
- Joining perks, such as cashback offers or bonus rewards points
- Ongoing low interest rates
- No account keeping fees
- Interest-free days
- Discounted insurance
- Retail gift vouchers and more
Refinancing to pay down debt
If the financial kick you need for 2020 involves paying off your outstanding credit card debt, a balance transfer to a 0% interest card may be an option worth considering.
0% interest credit cards are typically seen as debt survival tools, and these interest-free terms can range anywhere from 6 months to 24 months. Just keep in mind that once this introductory period has ended, the credit card will revert to its standard purchase rate. This is typically higher than the average credit card purchase rate.
Furthermore, if you make any new transactions with the balance transfer credit card, it will begin to accrue interest at this higher purchase rate. New purchases don’t fall under the 0% interest window.
Refinancing for easier credit card repayments
If you’re the type of credit card user who always finds themselves accruing interest on their purchases, you may want to consider refinancing to a lower rate credit card. This way, even if you’re being charged interest, you may save yourself money and time in potential repayment costs.
For example, if you had a credit card debt of $5,000 on an interest rate of 20%, and only made minimum repayments on this balance, it could take you over 45 years to pay off and cost you $24,345 in total repayments.
However, if you switched to a low rate credit card at 9%, and only make minimum repayments, you could shave 30 years and $16,715 off the total repayments you were originally facing before refinancing.
Repaying a $5k credit card balance with minimum repayments
|Credit card rate||Time taken to pay balance||Total cost of repayments|
|20.00%||45 years, 7 months||$24,345|
|9.00%||15 years, 10 months||$7,630|
Source: MoneySmart.gov.au Credit Card Repayment Calculator. Note: based on standard minimum repayments of 2% or $20 – whichever is higher. Figures do not include fees.
These significant repayment differences are due to the compounding interest that would potentially be charged on your credit card balance at differing interest rates.
Here’s a list of some low rate credit cards that allow for balance transfers:
Refinancing for rewards and perks
One of the main draws of credit cards for Australians is the ability to earn and spend rewards points through rewards programs.
These can include:
- Standard rewards – merchandise, appliances, gift cards etc.
- Frequent flyer rewards – plane tickets, seat upgrades, insurance etc.
- Retail rewards – points spend directly in a chosen retailers’ store, e.g. Woolworths.
You may also receive non-points-based rewards, such as cashback rewards. As the name suggests, this is where you may earn cash back into your account if you use that credit card at checkout. Typically, cashback rewards give you a certain percentage back, often at a capped amount, say, 10% of purchases up to $100 a month.
Further, some credit cards offer points as joining bonuses if you sign up with that provider. The points bonus is dependent on the provider but may even be the equivalent of enough frequent flyer points to get you a plane ticket from Sydney to Melbourne, for example.
Keep in mind, rewards credit cards often come with moderate to high annual fees. It’s generally considered par for the course with rewards cards, as these fees help to fund the programs. However, some can climb as high as $1,200, so it’s best to do your research around what annual fee may suit your budget.
If your current credit card isn’t giving you enough back for your spending, you may want to consider refinancing to a rewards credit card.
Here are some credit cards with high introductory bonus points that also allow balance transfers:
|Credit card||Purchase Rate||Balance transfer rate||Bonus joining points|
|St.George Amplify Signature||
|Qantas Money Qantas Titanium||
|ANZ Rewards Black||
Refinancing for fewer or zero fees
Perhaps you’re diligent with your credit card bills and don’t need to worry about high fees. Or maybe you don’t use your credit card enough to justify switching for a rewards program. You may want to consider refinancing your credit card to one that charges reduced fees.
The latest RateCity data shows that the average annual credit card fee is $135.40. However, there are 31 credit cards in the market that don’t charge an annual fee.
Here’s a list of some credit cards that don’t charge annual fees and also allow balance transfers:
Disclaimer: This article contains general information only and is not intended to be used as personal advice.
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