If you've got a big chunk of credit card debt, the interest payments alone may be crucifying your finances. It's not surprising, therefore, that balance transfer offers by banks are popular with Kiwis.

How it works is banks offer low or even zero interest for six months or a year on any balance you transfer to them from competitors' credit cards, store cards, hire purchase or other loans.

The banks make balance-transfer offers to grab market share from their competitors. Here are some things to consider if you are looking at transfering your outstanding debt.

You could be wasting your time

Human nature being counter-intuitive when it comes to money means that a good chunk of people who use balance transfers will just end up even deeper in the debt mire.


"Like debt consolidation, balances transfers can be a good way to build up even more debt," says Tom Hartmann, resident blogger at Sorted.org.nz.

In most cases, your old card stays open so there's still a temptation to spend on it as well as the new one, says Hartmann.

Balance transfers only really work, he says, when you plan to get rid of the debt.

Unless you change your behaviour you will continue to use up the credit available, which has just grown.

The UK's Financial Conduct Authority commented in research that it did in late 2015 that consumers may not understand the concept of balance transfers and may be storing up future debt problems.

It found that only half of accounts were paid off within the promotional period. That meant the other half weren't. I'm sure Kiwis are little different.

Sneaky interest rates

Many people have no idea that new spending on the card is charged at the full interest rate.

Banking Ombudsman Nicola Sladden investigates cases such as that of Jordan's, who complained when his bank charged him a higher percentage for new purchases than the rate advertised for the balance transfer.

He didn't understand the fine print of what he had signed up for.

In a summary of another such case, Sladden wrote: "We found the bank's advertising was not misleading because it stated the special interest rate was available for balance transfers and full details were in its terms and conditions."

Watch where your repayments go

If you start spending on the new card you might get a bit of a surprise when future statements arrive.

Typically, any repayments you make go towards the zero/low-interest balance first. That means that your new spending is attracting 21.95 to 22.95 per cent interest per month with most banks according to the rates published at Interest.co.nz. At that rate the debt will start to grow rapidly.

Do the sums

At the time of writing ASB, BNZ and Westpac, for example, were offering zero per cent balance-transfer deals.

Comparing their offers, however, involves a matrix of the number of months involved, the card fee, any interest rates for subsequent purchases, and an analysis of your spending/repayment patterns.

The ASB's Visa Light card, for example, had a zero fee and 13.50 per cent interest on new spending. But the balance transfer only lasted six months.

The BNZ's Low Rate Mastercard offered zero per cent interest for 12 months, so double the period, but charged a $60 annual fee and 13.45 per cent on new spending.

Both offered 55 days free credit.

Westpac had an interesting offer of 5.95 per cent, but for the life of the balance transfer. Or you could split your debt between the 0 per cent for 12 months and 5.95 per cent until it's paid off.

That could work out best for people who can't pay off their debt within a set period.

Each bank has a number of different offers. If you want to earn points or cash-back, you may pay a higher annual fee. Unless you're a spreadsheet ninja, crunch your numbers at this independent site: Tinyurl.com/balancetransfercalc

Watch your credit score

Every time you apply for new loans you leave a footprint on your credit report. This can make it more difficult for you to get credit in the future.

If, however, the balance transfer enables you to get out of the proverbial financially, then it may be worthwhile putting up with a temporary drop in your credit score. You can resurrect your score when the current crisis is over by making regular payments on other debt and bills.

Often, balance transfers work best for the very people who don't actually need them.

These "card tarts" borrow and keep the debt on the move to get free use of the money while investing elsewhere.

I can think of better things to do with my time to earn a small amount of interest on my savings. One wrong move and you could be hit with interest one month and it was all a waste of time.