Credit card deals that can sting

Beware of quick-fix solutions when paying down credit cards – they can cost you more,

CREDIT card customers laden with debt in the new financial year should take care if turning to quick-fix solutions to wipe money owing on plastic.

Financial institutions have plenty of enticing balancetransfer deals on offer including honeymoon interest-free periods of up to 26 months, allowing customers a set time to wipe their debts.

But experts warn while these deals – where you transfer debt from one card to another – can be a great way to shave down debt, it’s easy to get caught by spending on the card while at the same time trying to pay off a lump sum. If customers do make purchases on balancetransfer cards they should be warned – interest-free days on the new purchases will be unlikely to apply.

A report released last week by the Australian Securities and Investments Commission found that one-third of people who take out balance transfer deals end up worse off financially with higher debt.

ASIC found that while half of balance transfer customers reduced their total debt, 60 per cent did not cancel their previous card and some increased their debt by more than 50 per cent.

New data from financial comparison website iSelect found on its database there were nearly 60 balance-transfer deals available and honeymoon periods ranged from six to 26 months. And while these periods have no interest charges, be warned that once these periods end the zero per cent interest rate usually jumps to the cash advance rate. In many cases this is more than 20 per cent and can bite customers badly.

ISelect spokeswoman Natalie Pennisi said customers need to be careful before they sign up to these deals.

“If you’re thinking about doing a balance transfer, take a good look at whether or not a honeymoon period offer is right for you,’’ she said. “Read the fine print and make sure you know what the interest rate is post that honeymoon period because it is more than likely going to increase.” Annual fees can also be as high as $700. Latest Reserve Bank of Australia figures show Australians owe more than $51.9 billion on plastic and more than $32.4 billion is accruing interest. Crown Money Management’s chief executive, Scott Parry, said maximising these interest-free periods is critical to paying down debt.

“Having 26 months is a long time, you have to work out your total debt amount, divide that by 26,’’ he said. “That’s your monthly repayment to make sure you can pay off the principal by the time the balance-transfer ends and the honeymoon is over.”

Customers should also be aware they can be charged a balance-transfer fee – often around 2 or 3 per cent.