Money

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




From accounting to empowering people with the new age

Katie Gasson at the Psychic Channeling and Healing Festival at the South Grafton Ex-Servicemen's Club.

Katie Gasson talks about how she found the new age.

Where will 2016 sit in July Carnival history?

Hong Kong based owner Patrick Fu and his son bring back Ramornie Handicap winner Smart Volatility back to scale.

We look back at the big moments of the 2016 July Racing Carnival

Latest deals and offers

Guy Sebastian a hit at Splendour in the Grass

Guy Sebastian performs at Splendour in the Grass with Paces.

REALITY TV judge a hit with festival crowd.

Superheroes of the big screen enjoy sounds of Splendour

CHRIS Hemsworth and his Avengers mates drop by Byron festival.

Indigenous artist shows tourists secrets of Aboriginal painting

Ever thought "I could do that" about Aboriginal art?

Dynamic pics from Splendour Day 1

The Strokes perform at Splendour in the Grass 2016. Photo Marc Stapelberg / The Northern Star

Check out the latest pictures from Splendour in the Grass.

Bindi Irwin: 18 magic photos to mark her 18th birthday

Bindi Irwin with a python.

Photos: Bindi Irwin from babyhood to 18

Aussie director makes his mark on new Roots mini-series

Malachi Kirby as Kunta Kinte in a scene from the TV series Roots.

BRUCE Beresford behind final episode of remake of iconic series.

You can own this Queensland town for just $1

Yelarbon

Unprecedented auction of town's business centre with no reserve

Work starts on $15M Caloundra apartment building

Turning the first sod at the Aqua View Apartments site in Kings Beach are (from left) husband-and-wife developers Alex Yuan and Stella Sun with construction company Tomkins director Mike Tomkins and Councillor Tim Dwyer.

Developers excited about addition to Kings Beach skyline

Plans revealed for 1500-lot 'master-planned community'

Precinct will be bounded by Boundary St and Shoesmith Rd

Ecco Ripley sales run sparks prime release

MOVING IN: Sekisui House has announced the release of more residential blocks at Ecco Ripley.

Sekisui House is preparing to unveil more land at Ecco Ripley

Massive residential 9-storey high-rise hit by delays

An artist’s impression of the eight-storey-high apartment complex that Bernoth Holdings wants to build in South Toowoomba, next to the City Golf Club.

Developer struggles to get approved high-rise development started