Swap credit cards for a better deal

Paul Clitheroe.
Paul Clitheroe.

Australians are taking serious steps to reduce personal debt, and it's great to see Reserve Bank figures that show the average credit card balance slipped by almost $30 in July.

It's welcome news because for years the outstanding balance on our cards has been steadily rising. Along with extra repayments, swapping to a card with a better rate can help you make inroads on your card debt.

In the current competitive market, card issuers are offering plenty of low honeymoon rates particularly on card transfers, in a bid to poach your business from their competitors.

Having a lower rate card can really make a difference. On the average card debt of $3,300, switching from a card with an interest rate of 20% to a card with a rate of 10.75% could see you shave $305 off your annual interest bill (assuming the card balance stays at $3,300 for the year).

A quick check of comparison website RateCity reveals stacks of cards with interest rates below 5% on balance transfers. One card from Westpac for instance, charges a rate of just 0.99% for nine months, with an ongoing rate of 13.49%.

With plenty of balance transfer deals to choose from, look for an offer that suits your ability to make the best use of the low rate period. A 0% offer that jumps to 15% after three months may be no good if there's  no chance you'll pay off the debt in that timeframe. You could save more if you choose an introductory rate of, say, 2% that runs for 12 months.

It's possible to save money with balance transfers but there are also traps to avoid. In most cases the low honeymoon transfer rate only applies to the transferred amount. New purchases are charged at the card's normal rate from the moment the transaction is made. And, when a new credit card has been established with a balance transfer from another card, there may be no interest-free days on purchases until the card debt is paid out in full.

One pitfall to be very clear about, is the rate you will pay on the remaining balance transferred once the introductory rate expires. With some cards this is the cash advance rate, which can be more than 20%.

The trick is to take full advantage of the honeymoon period to pay off your existing debt, and avoid ramping up your card spending (even with the festive season approaching) or you'll remain in financial trouble.

Another thing - if you switch to a new card, get rid of the old one. Cut it up. Hanging onto it for emergencies is not a good move. Chances are you'll be tempted to use it again, especially with its full quota of available credit. When you ditch the old card don't forget to tell the card issuer otherwise you'll still be expected to pay annual card fees.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.

Topics:  clitheroe, credit card, interest rates, reserve bank



Local Real Estate

finda logo
Featured Real Estate
Stunning Ocean View... Interest over...
House 4 3 4
MUST BE SOLD !! All Offers...
House 4 2 2
Luxury Apartment with... Offers Over $1.4...
Apartment 3 2 2
Large and modern within... Forthcoming...
House 5 3 2

Featured Jobs

finda logo

Ipswich jobs listed daily


Featured Jobs
13 WEEKS `TILL CHRISTMAS... 13 WEEKS `TILL CHRISTMAS Distributors Wanted! Make cash in time for Christmas. ...
STUDY NOW... PAY LATER! STUDY NOW... PAY LATER! Vet Fee-Help deferred payment scheme (*conditions apply) CHILDCARE ...



Local Partners

Local Profile

Stay Connected

You can change the newsletters you are subscribed to when you edit your profile

Edit Profile


Horoscopes

Libra

Someone has overlooked to repay you some money or a favor. You may be at odds as to how to deal with this. Give it a little more time, then...

read more

Marketplace

Special Offers & Promotions

Compare & Save