According to ASIC’s Money Smart website, Australians owe around $32 billion on our credit cards, and an average of $4,200 per card holder. With some credit cards charging 20% or more, at this rate it would take you over 41 years to pay back $4,200 if you only make the minimum repayment. Plus, you’d pay back nearly $20,000, thanks to interest. No wonder many find it hard to ever pay down their debt.
Tempting, then to consider those great sounding “balance transfer” offers from lenders. They can sound attractive – just transfer your balance to us and we’ll give you 0% interest for a period. Too good to be true? Well, sometimes.
Used properly, these offers can help. However, you must have a plan to pay down the debt. If not, you’ll soon be back in the same old cycle of trying to meet your interest and repayments. Often a balance transfer can be confusing, and can get you in to even more debt than when you started.
1. The low rate or 0% interest rate offer
These offers can be an easy way for you to get some relief from credit card interest, but you need to be disciplined to truly take advantage of these offers. Focus on paying off more of your debt during the low to no interest period – if you do not pay off your debt by the end of the term, you can be stung with rates as high as 20%.
2. Look at the fees
Like anything that you sign up for, you need to understand any fees and charges that you may have to pay. Some of the fees to look out for include;
- Annual card fees – they can range from $0 to well over $300 if you have a rewards card
- Late payment fees – if you miss your repayment by the due date each month
- Balance transfer fee – usually charged when the new card is set up. This is often a percentage of the amount you are transferring and could represent a few hundred dollars that you will need to pay before you have even started paying off your debt.
- Fees for withdrawing cash – these can really hurt your efforts of paying down your debt as you can incur both a fee and a higher interest rate if you use your card for this.
3. It doesn’t make your debt disappear
It may be a lower interest rate, but that doesn’t mean you can just forget about it. Do your math, come up with a plan and pay back more than the monthly minimum repayment. This will give you the best chance in paying down your debt.
4. After the balance transfer period is over
If you haven’t paid off the amount you transferred in full, the interest rate will usually revert to a much higher rate, as high as 20%. This means that all your hard work at paying off your debt could come undone as you start paying high interest and your outstanding balance creeps up.
5. The rate on purchases is often higher
If you plan to make purchases on your card, make sure that you know what the interest rate is – this is usually higher than your balance transfer rate. It’s not always obviously which transactions will be paid off first when you make a payment. For example, the highest rate, the oldest repayment, your balance transfer, etc. Confirm with the lender how your repayments will be applied to your outstanding balances so you understand the impact your repayments are making.
Easy Street offers an award winning low rate credit card with no surprises. It has the same low ongoing rate for balance transfers, cash advances and purchases – currently 8.99%p.a.* Easy, right? As a long term solution to credit card problems, it’s a more straight forward way to manage your debt.
What’s next?
- See how much you could save by switching your credit card to Easy Street with this credit card comparison calculator
- Find out more about the Easy Street Credit Card and apply here.
* Credit eligibility criteria, terms and conditions, fees and charges apply – details available on application. Rate is current as at 09/12/16 and subject to change without notice. This information is general advice only and does not take into account your objectives, financial situation or needs (your “personal circumstances”). Please consider if this information is right for you before making a decision to acquire any product. Easy Street Financial Services is a division of Community First Credit Union Limited ABN 80 087 649 938 | AFSL and Australian credit licence 231204.