Slashing credit card debt: Consolidate after Christmas

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Jack Han investigates the tricks and traps to consolidating your credit card debt.

January 11, 2010

After the Christmas season, many of us are guilty of forgetting to clean up after loosening our wallets, which lets debt mull away at our finances. For credit card users, this becomes a serious problem when you’re spending the rest of the year paying off one holiday’s mistakes.

As of October 2009, the average credit card account had a balance of $3,141, according to the Reserve Bank. Traditionally, this figure balloons in December, so for a household with multiple cards, debt could easily build to the tens of thousands.

Credit card debt consolidation is a popular method of combating seasonal debts. By combining many accounts into one at a fixed and low rate, spenders can focus on reducing their debt as fast as possible without the worries of multiple repayment dates and exorbitant interest.

However, consolidation is virtually useless unless you can find the lowest interest rate, which is why it is so important for holiday shoppers to compare online and switch to the best offers in town after gathering all that debt.

One strategy is to take out a balance transfer, which swaps the amount you owe in your credit card account to a new account, typically providing you with a very low or even no interest rate for the introductory period.

The advantage of this is that in some cases, you will not be required to pay interest on your debt for a period of around six months to a year, giving you plenty of time to plan a repayment schedule and clear your balances.

Many banks and financial institutions will be happy to help you consolidate debt through loans or balance transfers, but what you need to consider are the terms and conditions, as well as how long you want to be repaying the debt.

Conditions on a balance transfer can include transaction fees, which could cost you hundreds when transferring large amounts, and penalties, which may raise the rate if you miss repayments.

However, the biggest danger of credit card balance transfers can be ourselves. When your interest rate suddenly drops, you will find that you have smaller minimum repayments and therefore much more cash every month, so the temptation of spending will be as strong as ever. Contributing to this is the fact that average credit card limits have reached an all time high with an average of $8,773 in 2009 according to the Reserve Bank.

So even before you throw out the trimmings, you should think of ways to clear out the real mess this season, and begin locking in your credit card repayments. After all, the last thing we want to remember our holidays for is a mountain of bills in the letterbox.


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