According to Reserve Bank figures Australian credit card debt is just over $50 billion and most people will still be paying off their debt in 2037. While there has been a slow-down in credit card use the majority of people are still only paying the minimum repayment amount so they are never getting on top of their debt. With that said, low rate credit cards have flooded the market recently and have been enticing shoppers with their attractive rates, 0% balance transfers, and introductory periods and rewards programs.
The same principles of using credit still applys to low rate cards. So don't be fooled by its low ongoing rate as this will still end up costing you big bucks in the long run. With some discipline and a little knowledge you can learn how to use credit wisely and even where you can save by using these products to their full potential.
What are the general features of a low rate credit card?
- Low annual fee
- Low ongoing interest rate
- 0% or low rate on balance transfers for up to 6 months
- Interest free period is usually the same as other credit cards
Companies such as BankWest, St George, Commonwealth Bank, Macquarie Bank, Aussie and even Woolworths are offering low rate cards with ongoing interest rates below 13 per cent and balance transfers rates of 0%. This 0% rate is usually offered on balance transfers up to the first 6 months. This may help to offer some temporary relief on making those payments, but after this time frame the rate will revert back to the standard rate and you'll find yourself back in a debt bungle again.
To avoid being swamped by your repayments after the intro period ensure you know what your ongoing rate is once your intro period is up. And use the time before this to save and catch up on making all your repayments. You may find that the ongoing rate is higher than your current credit cards. If so, avoid taking out the card altogether as this won't help you manage your debt at all. However in a situation where the rate is lower, you might find that rolling all your other credit balances into one card could help you gain control on the exact amount of repayments you need to make each month.
Things to consider before applying for a low rate credit card:
- Find out what the ongoing rate is after the intro period has ended. This varies from card to card and can sometimes be higher than a standard card
- Know the intro rate and exactly when this expires
- Understand how balance transfers work and if there is an extra interest charge for additional purchases
- Understand how your credit cycle works and how your 'interest free' period works. This will help you pinpoint exactly what day a repayment will need to be made for a purchase.
- Make an effort to payback more than the minimum repayment each month. Paying back only the minimum amount isn't actually enough to clear your debt
- Find out what is your annual fee. A higher fee might not be cost effective. See if this can be redeemed with points or reduced by having another account with your institution
- Change your spending habits or don't bring a credit card out with you at all
Find a low rate credit card at RateCity.com.au by using our credit card comparison tool.