It’s wise to play the cards right
Card transfer deals seem smart, but knowing the rules will avoid ending in deeper debt, writes Sophie Elsworth
CREDIT card customers who are swimming in debt could end up costing themselves more by signing up to expensive balance-transfer deals.
While lenders are eager to offer struggling cardholders these types of deals – where you transfer debt from one card to another and enjoy interest-free periods – analysis shows the offers vary considerably.
Financial services firm Canstar has found there are 175 BT deals on the market and about 60 per cent of them offer 0 per cent interest-free honeymoon periods.
But borrowers should read the fine print on these deals, as revert rates can range anywhere from 9 per cent through to 19 per cent once the interest-free periods end.
Canstar crunched the numbers and found the average card balance on which interest is accruing is about $1970. A cardholder paying off the debt in 12 months on a 0 per cent honeymoon deal would save about $304 on what they would have paid if they’d stuck with a card with the average interest rate of 17 per cent.
Canstar spokeswoman Belinda Williamson said revert rates can be a killer and it’s critical for cardholders to understand how their BT card works. “Be aware that if you make a new purchase using a balance transfer credit card, it’s not covered under the interest-free condition as this applies only to existing debt,” she said. “The interest rates charged on new purchases are charged from the day of purchase with no interest-free days and can be quite high, from 8.99 per cent to 21.99 per cent.” ANZ’s head of consumer cards, Anuja Sivamalai, said customers also needed to be on top of the card’s promotional period end date. “To get the full benefit, make repayments so the balance transfer is paid off before the promotional period expires,” she said. “Be aware of fees such as balance transfer fees and the annual account fees.” Ms Sivamalai also said if you decide to transfer your card debt from one institution to another, consider if you need to close your old credit card account. “This could avoid the temptation to spend on your old card and you could also avoid the duplication of fees,” she said.