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Use your credit card to get out of debt


Laine Gordon

By Laine Gordon

3 min read

Australia has confirmed its reputation as a nation of shopaholics, with credit card debt reaching unprecedented levels. Indeed, the Reserve Bank said we owed almost $50 billion collectively on our credit cards in August 2011.

While the RBA figures also showed that Aussies had in reality trimmed credit card spending for the second straight month, switching to a ‘balance transfer’ or ‘low interest rate’ cards is one way to manage outstanding debts.

Transfer your balance

A balance transfer credit card allows you to transfer your existing balance onto a new card and repay it at a much lower interest rate. This can be a useful way to stop your credit card debt spiralling out of control through ballooning interest payments, and at the same time allows you to pay off your outstanding balance sooner.

However, it is worth noting that balance transfer offers are usually for an introductory (or ‘honeymoon’) period, and in most cases apply only to the transferred amount. Once this term expires, the remaining balance will generally revert to the card’s advertised rate. This is where it pays to read the fine print, so you know how much time you have to make a dent in your debt before you are slugged with the higher interest rate.

When choosing your card, there are undoubtedly many options available, but using a financial comparison site can help fast track the selection process.

For example, Aussie Home Loans has a low rate MasterCard with a 12-month introductory rate of 2.99 percent (and 9.99 percent on purchases). If you transferred a balance of $3000 from an existing credit card with a standard interest rate of 19.74 percent, a quick calculation shows you would save over $500 in interest over the 12 month balance transfer period.

Similarly, National Australia Bank is offering a low rate Visa card with a balance transfer period of six months at a rate of 4.99 percent. Even for this shorter period, transferring from the higher rate card could save you more than $220.

These are significant savings, but it still pays to be conscious of the ongoing rate – 13.29 percent for the Aussie offering, while the NAB charges 13.49 percent – before signing up. It is also worth comparing the annual fees on prospective new cards, but one of the most important steps when switching is to cut up your old credit card to save yourself falling into old habits.

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