How to consolidate your credit card debt

Do you have a couple of credit cards which plague you with constant reminders of outstanding debt? Trying to manage your debt when it’s coming from every angle can be difficult, not to mention costly.

Less can be more when it comes to credit cards. Spreading your debt across different credit cards may make it harder for you to manage, and means you will be accruing more interest rate charges.

If you are feeling stuck between a rock and a hard place and want to break your credit card debt, there are a couple of options you can consider. But it pays to do your research, particularly if you have bad credit. 

What is debt consolidation and why should I do it?

Credit card debt consolidation is when you combine your multiple existing credit card debts into one to better manage your repayments and minimise the amount of fees and interest you’re paying. This is usually done through a debt consolidation personal loan or a balance transfer credit card.

However, you should ensure the consolidated debt’s interest rates and/or fees are not higher than what you were paying on your previous debts.

How do I consolidate my credit card debt?

There are two main options you can consider when you need to consolidate your credit card debt; a balance transfer credit card or a debt consolidation personal loan.

  1. Balance transfer credit card – this involves moving your debt(s) into a new credit card with (ideally) a lower or no interest rate for a set period of time. This gives you some much needed breathing room to get back on your feet and pay down your debt.
  2. Debt consolidation personal loan – this involves moving your debt(s) into a personal loan with (ideally) a lower interest rate than credit cards, and a fixed term so you’ll be encouraged to pay off the debt through minimum repayments. If you have multiple credit card debts, this helps to simplify your repayments. Learn more about bad credit personal loan options here

Which credit cards can consolidate debt?

Balance transfer credit cards are designed to help you consolidate your credit card debt. Some lenders will also allow you to include debt from personal loans, however the overall debt cannot exceed the credit limit on your new card.

Balance transfer credit cards help by allowing you to transfer your debt to a credit card that charges a lower interest rate and lower fees. They can also offer a honeymoon period with no interest or a reduced rate, providing much needed breathing room to begin to pay back your debt.

The best practice to avoid growing more debt is to freeze your balance transfer credit card the moment you get it and budget effectively so you start paying the debt off. Making any new charges on top of your existing debt will see you hit with interest on that new purchase straight away.

Also, keep an eye on the length of your honeymoon period and post-honeymoon interest rates, as the balance transfer credit card may revert to a higher interest rate than your previous ones when this introductory period expires. Similarly, the balance transfer card may have higher fees and charges after this honeymoon period.

Pros
  • Honeymoon rates
  • Lower interest rates
  • Less fees
Cons
  • If misused, you’ll grow debt
  • Post-honeymoon interest rates could be higher
  • Post-honeymoon fees could be higher

Who offers debt consolidation credit cards in Australia?

There are a wide range of Australian lenders, including major banks, credit unions and mutual banks, who provide balance transfer credit cards to help consolidate credit card debt.

The best way to find a balance transfer credit card that suits your financial situation is to utilise comparison tools, such as RateCity.com.au’s comparison table or balance transfer calculator. This allows you to filter through a range of search options that are tailored to your specific financial needs, such as interest rates, features and fees.


How do I get a debt consolidation credit card?

  1. Use RateCity.com.au’s comparison tools to search and compare the most competitive balance transfer credit card and for your financial needs.

  2. Use RateCity.com.au’s balance transfer calculator to ensure you’re choosing the product that will save you the most money and/or help you pay off your debt in the most suitable time frame.
  1. You need to complete the standard application process for your new credit card. Ensure you check your eligibility before applying, and try to present yourself as an ideal borrower, particularly if you have bad credit.

  2. Provide your new credit card company with the details of your original account(s), so the balance can be transferred.
  1. Cancel your old credit card. This prevents you from being charged additional fees, and helps you quell the temptation to use it and grow more debt.

Can I use a credit card to consolidate debt if I have bad credit?

Your approval for a balance transfer card depends on your credit history and reliability as a borrower. If you want to use a balance transfer credit card to consolidate debt, but aren’t secure that your credit rating will get your application approved, you may need to work on improving your credit score.

This may be frustrating, but it’s for your benefit, as every time you apply for a credit card the provider will perform a ‘hard’ inquiry on your credit report. If you are ultimately rejected for the balance transfer credit card, this will hurt your credit score, stay on your credit history for up to 12 months, and potentially make things worse.

This doesn’t mean you won’t be approved by any balance transfer credit card provider, but you should always try to move the odds in your favour first before applying. 

What should I be wary of when consolidating debt?

Consolidating your debt isn’t an easy fix. While it’s often a smarter way to manage your debt and could help you pay off your debt sooner, you do have be aware of the fine print.

Things to look out for:

  • Check that your new interest rate is lower than what you are currently paying, otherwise you may end up finding yourself in more debt.
  • Don’t forget to take the fees and charges into consideration.
  • If you have arranged a balance transfer that has a low rate, or no rate, introductory period, make sure you check what the interest rate is after this period ends and commit to paying off your debt during the intro period.
  • If you are considering a credit card provider that is not well-known, check they are licenced by ASIC.
  • Be cautious when companies offer ‘credit fix’, ‘credit repair’ or ‘debt solution’ and charge a fee on the assertion they will improve your credit rating. Credit card defaults are automatically marked against your name and cannot be removed unless you prove it’s incorrect.

Need some help?

If you’re feeling overwhelmed and want some help managing your debt, it might be worth talking to a financial counsellor. This is a free service offered by community organisations, community legal centres and some government agencies to help you solve your money problems. For more information, please visit ASIC’s MoneySmart page.

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Learn more about credit cards

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How to get rid of credit card debt

  1. Calculate your debt. Credit card calculators make it easy to determine the repayments required to chip away at your debt in the shortest timeframe possible for your budget.
  2. Repayment plans. Take some time to formulate a credit repayment plan. Consider increasing your income, scaling back your lifestyle or refinancing.
  3. Talk to your credit provider. If you’re still struggling with your debt, give your credit provider a call. You may be able to come to a new arrangement.

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

Are credit checks mandatory?

In Australia it is impossible to get a credit card without the provider performing a credit check first. This is for your benefit, as it helps to prevent you from falling into avoidable debt.