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



Our young Attenborough scoops documentary awards

Knockrow wildlife documentary maker Marli Lopez-Hope during filming for The Great Forest

"The subject has created a lot of talk, which is what we wanted."

Why this Lismore mum will no longer be forced to sell her home

MUCH NEEDED: Rotary Club of Summerland Sunrise donated almost $4500 to the Mitchell family for renovations to support mobility for their son Isaac, who has cerebral palsy. Pictured is Rose Mitchell and Isaac (foreground), with (from left) Past President Andrew Heap, Josephine Saunders, President Zell Bennett, and Graham Meineke (background).

A local club has made a huge difference for this family

Surfrider Foundation to give voice to Ballina surfers

BURIED: This steel anchor, a component of the planned Lighthouse Beach shark barrier, is now completely buried along with several others after two days of big swell and high tides.

A "positive outcome” from the shark barrier debacle.

Local Partners

Jim Carrey slams 'shameful greed' of lawsuit

Jim Carrey has slammed the "shameful greed" of White's ex-husband.

'Highly unlikely' Brad Pitt will face prosecution

It is highly unlikely that Brad Pitt will be prosecuted

WATCH: Justin Bieber grabbed in Germany

A video has emerged of singer Justin Bieber being attacked

Why The Wrong Girl is right for Jessica Marais

Jessica Marais and Ian Meadows in a scene from the TV series The Wrong Girl.

ACTOR makes the sometimes awkward character her own in new comedy.

What's on the small screen this week

Jessica Marais in a scene from the TV series The Wrong Girl.

A NEW romantic comedy debuts while footy codes ramp up for finals.

Airbourne talk drop bears, beer and taxes

Airbourne have a new album coming out and a new tour on the way.  Photo Contributed

Airbourne release album for the aussie battler

Buyers forking out millions

Owners benefiting from undersupplied Northern Rivers market

UPDATE: Former rodeo champ's sale rained out, now back on

Larkhill local Ken Consiglio is having an auction of most of the things on his property.

'People kept showing up and we had to turn them away'

Couple build their own 'tiny house' for $45k

Holly Bowen and Oli Bucher built their "tiny house" themselves, only hiring a plumber and an electrician. Photo/supplied

The house, which is built on a trailer and can be towed.

Sunshine Beach property breaks real estate record

The property overlooks Sunshine Beach, as the backyard lawn meets the sand.

Sunshine Beach mansion sale smashes real estate record

New $33 million development planned for Ballina Shire

The site of a proposed seniors living development at Skennars Head.

Plans include 211 homes, clubhouse and recreational facilities

SOLD: Historic hotel finds new owner

Post Office Hotel Grafton

Photo Adam Hourigan / The Daily Examiner

Pub in new hands and heading in a brand new direction