Credit card debt

Australian credit card debt is enormous– we’re in love with the plastic. Although credit cards are very convenient for everyday purchases, it’s also easy to lose control of your spending – especially when you see a ‘bargain’. But if you’re not paying off the balance of your cards monthly, what you buy is costing you more than it should because of the interest you’re paying.

So how do you control your credit card debt? It’s a good idea to get your spending under control and stop accumulating new debts. This could mean budgeting and writing down all your spending or in the extreme case;  physically cutting up your credit cards.

If you don’t feel that your spending is out of control, you may be able to get a better deal by transferring what you owe to an alternative credit card. Some credit card companies advertise attractive offers to transfer your existing credit card balance to them.

An introductory interest rate is only one aspect of a credit card. The benefits of your current credit card may outweigh the short-term benefits of an attractive introductory rate. Make sure the offer really suits your needs and get the full picture before you make a move by asking these questions:

What’s the standard interest rate?

There may be an introductory rate for a set period, but the standard interest rate may be higher than your current credit card.

Does the introductory interest rate apply to all purchases or cash advances during the introductory period or just to the balance transferred?

Any new purchases or cash advances could be charged at the standard interest rate, even if you bought them during the introductory period.

Apart from the interest rate, what other features does the credit card offer?

If you take advantage of a special balance transfer offer, you may not be able to take advantage of the interest free period on new purchases until you pay off the balance transfer in full. You may have to pay high annual fees as well as higher than usual interest rates for reward schemes on the new card.

Is the existing credit card account paid off immediately or will there be some delay?

If there’s a delay between the transfer being approved and the amount being credited to your old account, you may have to pay two sets of interest while the transfer takes place.

 What’s the credit card limit?

The credit card issuer may approve a credit limit lower than your balance transfer amount. You could end up with a new credit card but your balance not fully transferred.

Is there a cheaper way to borrow money?

Credit cards generally charge the highest rates of interest. If you need to borrow larger sums of money for six months or longer, a personal loan may be the better option.

If you have a few debts, consider taking out a debt consolidation loan to pay off all of your creditors, leaving only one monthly payment to deal with. Generally, this monthly payment will be lower than your former payments, but you should try to make additional payments to pay off what you owe as soon as possible. Speak to one of our brokers to find the best loan for you.

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