TIPS TO GET RID OF YOUR CARD DEBT
How credit card lenders lure you in – and how to dodge them, by Emma Blake and Sophie Elsworth
1. INTEREST-FREE DAYS
Trick: Usually 55 interest-free days but some cards can offer up to 62. But purchases are charged differently to cash advances.
Tip: Interest-free cycles vary from card to card. They usually begin on a similar day each month. Pay your bill off in full every month or your interest-free days won’t apply.
2. INTEREST RATES
Trick: Lenders will lure you in with rates ranging from as little as zero per cent but this often only applies for a “honeymoon period” and not everything.
Tip: Rates vary on purchases, balance transfers and cash advances. Some card purchase rates are as low as 9 per cent so, if you are paying more than this, shop around for a better deal.
3. MINIMUM PAYMENT
Trick: If you only ever pay the minimum on your card every month it’s unlikely you’ll ever pay it off. It is usually 2 per cent of the debt, so could take decades and cost a fortune in interest .
Tip: If you can’t pay your debt in full each month try to pay more than the minimum or switch to a balance transfer deal that has a zero per cent period and use it to pay it off.
4. REWARDS POINTS
Trick:Don’t be fooled by the glitz and glamour of flight upgrades and other “gifts”. You usually have to pay a fee and spend a minimum amount to qualify.
Tip: Only sign up to a rewards program if you pay off your card in full each month or you are probably losing money in interest charges which override any rewards.
5. BONUS POINTS
Trick: Lenders use bonus points and introductory interest-free periods as their bait. They rely on you to spend up on the card without paying it off in full.
Tip:Don’t be enticed by new deals. Look beyond the marketing tactics and work out if the card will suit you. If you are paying your debt in instalments find one with the lowest rate to save money.
6. BALANCE TRANSFER
Trick: A great way to pay off your card if you make the most of the zero per cent period. But you may lose the benefit of interest-free days if you spend up.
Tip: If you take out a balance-transfer deal hide or destroy your new card so you make no new purchases.
7. HONEYMOON OVER
Trick: Once this ends on a balance-transfer the card’s interest rate will normally jump up often to more than 20 per cent
Tip: Pay off your balance transfer debt in the interest free period by dividing the debt by the number of interest free months and make no new purchases.
Trick: Think carefully before using your credit card overseas, especially for withdrawing cash, as hefty rates and fees apply.
Tip: Reduce your card limit to keep your debt levels down. And even if you never spend up to your limit, the full amount is counted as debt when you apply for loans such as a mortgage.
9. CASH ADVANCES
Trick: Just because you have a $5000 credit limit doesn’t mean you should spend it as cash. Hefty interest rate charges apply the minute you make a cash advance and will cost you dearly.
Tip: Never use your card to take cash out as you’ll be stung instantly. There are no interest free days for cash advances and the rate is often much higher than for buying.
Trick: Annual fees and charges for going over your limit often apply so read the fine print.
Tip: Choose a card with no annual fee but don’t go over your limit or you will likely be charged.