Don’t let credit costs rule you
THESE SIMPLE STEPS CAN HELP YOU MINIMISE CREDIT CARD PAIN
CREDIT card customers trying to wriggle their way out of debt need to ensure they are not getting caught out by tactics to slug them with excessive charges.
Despite many Australians shying away from plastic, latest Reserve Bank of Australia data showed cardholders still owed $21.7bn on plastic, accruing hefty interest charges.
There are four common traps that can sting cardholders if they don’t pay close attention to the way they use their card.
1. GETTING HIT WITH HIGHER RATES ONCE INTRODUCTORY PERIOD ENDS
Crown Money Management’s chief executive Scott Parry warns customers to be on high alert if they are being offered an introductory period where there are no interest charges or low interest charges before reverting to a higher rate.
He says it can result in expensive charges being applied down the track ack and can catch out unaware customers.
Parry also says if you jump from card to card to snaffle interestfree periods “your credit score can plummet”.
“You could end up looking like a credit junkie,” he says.
2. FAILING TO PAY ATTENTION TO FEES AND CHARGES
Many credit cards come with annual fees and, of course, expensive charges including interest rates above 20 per cent.
Doing a cash advance – where you withdraw cash from your credit card – results in interest being charged immediately, something some cardholders do not know.
Financial comparison website RateCit RateCity’s spokeswoman Sally Tindall says you ne need to pay close a attention to exactly what you are getting charged. “Credit card interest rates can climb as high as 2 24.99 per cent,” she sa says.
“T “That kind of interest rate can be financially crippling if you’re not careful.”
3. BEING UNCLEAR ON WHEN THE INTEREST-FREE DAYS ARE
Credit cards come with interest-free days that usually span up to 55 days.
But Parry says it can be “difficult” to monitor when these start and finish.
“You have to pay off your card in full literally within the same month that you spend," he says.
“Trying to work out when the 55 days does or doesn’t start can result in you getting caught and paying interest.”
4. PAYING OFF JUST THE MINIMUM AMOUNT
On most credit card accounts customers only have to make minimum repayments at just 2 per cent of the total balance owing.
Tindall says this can quickly lead customers spiralling into a large amount of debt if they only pay off small amounts of the balance owing.
“If someone with a $2000 debt just stuck to paying the minimum they would take over 16 years to clear their debt at a total cost of $5000,” she says.
Tindall says the best way to keep out of debt is to pay off the card “in full every single month”.