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



Stan our man for Archibald Prize

Stan Gilchrist in front of the portrait  East Ballina artist Brett Belot will enter in the Archibald Prize later this year.

Local face to be entered in prestigious national art prize

Ten awesome things to do this week

Editor of  Express Examiner Susanna Freymark interviews Casino's 2015 Mr Beef Chad Taylor.

From Mr Beef in Casino to Byron Bay Rugby

Fisherman in hospital after hooking a shark off Evans Head

File photo of NSW Ambulance.

Fisherman in his seventies rushed to hospital after shark encounter.

Local Partners

Ben Stiller and Christine Taylor split after 17 years

BEN Stiller and his wife Christine Taylor have called it a day in a joint announcement.

Why The Voice hasn't produced a star

Boy George responds to Brittania Clifford-Pugh's heart-warming message.

It's the industry, not the show, says Boy George

These actors hated their movies and didn’t mind admitting it

Channing Tatum and Marlon Wayans in a scene from GI Joe: The Rise of Cobra.

Every year, Hollywood blesses us with plenty of God awful movies.

Miranda Kerr and fiance hang up backyard tent for wedding

The decorators and caterers are arriving for the final preparations for the wedding of Miranda Kerr and Evan Spiegel. Pictures: Splash

Evan Spiegel and Miranda Kerr are set to marry today

Book review: Mia Freedman's book meets her critics head on

I appreciated Freedman's blunt honesty in the book

Comedy production hits Rochdale stage

Thoroughly relishing their roles as the three crotchety old veterans (performed by Co Gray Wilson, Jason Smith and John Taylor), they provide fascinating individual insights into three proud men who despite their frailties are determined be adventurous and joyful to the end.

Heroes is a comedy play by Gerald Sibleyras.

Man's amazing comeback from monster crisis

Pat O'Driscoll agents Penny Keating and Doug Webber sold 56 Agnes St, The Range at auction over the weekend.

NOT long ago, he sold his possessions to pay staff. Now he's back.

Here's your chance to carp about feral pests

Carp might by great fun to catch but they're destroying Australia's watercourses.

Science in the Pub looks at carp and coral trees

SNEAK PEEK: What new shopping centre is going to look like

Artist impression of the proposed redevelopment of the cinema and shopping complex on Jonson St, Byron Bay.

Mercato billed as regional NSW's most sustainable shopping complex

How Toowoomba house prices compare in Australia

For sale sign in front of home.

Here's what $700,000 will buy you in Toowoomba, Brisbane and Sydney

Slaves in Byron: The dark side of housing crisis

Housing generic.

A darker side to Byron's economy

Ready to SELL your property?

Post Your Ad Here!