Fast-track route to wiping out credit card debt

MANY Australians will have arrived in 2018 armed with hefty credit card debt that could cause financial heartache if not reined in.

The damage from the festive season has already been done, but the full extent may not be realised until credit card statements begin to roll in.

Starting a brand new year off in the red can be demoralising, even though as a nation we are no strangers to debt – Reserve Bank of Australia data shows we owe more than $51.2 billion on plastic and more than $31.6 billion is accruing interest.

While paying with credit can seem like a good idea at the time, this is not the case when the debts cannot be paid off by the due date and interest charges of 20 per cent and higher begin to apply.

So by the time someone considers a balance-transfer – where you transfer one card debt to another with a honeymoon interest-free period – they are often already swimming against the tide.

Financial comparison website RateCity’s spokeswoman Sally Tindall says balance-transfer (BT) deals can be a financial lifeline, but come with some traps.

“It’s a good way to buy yourself some more time to pay down your debt, but you must know for most cards your interest-free days will be void if you shop with the BT card,’’ she says.

“Put it in the freezer or cut it up and also make sure you consider the fees including annual fees and balancetransfer fees.”

Customers must also make minimum repayments on debts during the zero per cent interestfree honeymoon periods.

Australians sign up to about 450,000 balance-transfer deals annually, but if customers don’t maximise the interest-free period they can end up in financial strife.

RateCity data found there are nearly 90 BT deals available on the market that have a zero per cent interest period.

But the corporate watchdog, the Australian Securities and Investments Commission, is keeping a close eye on these deals and has questioned whether banks are deliberately offering “zero interest” to customers who are likely to not pay back their debts quickly.

They are looking back at five years of banks’ data to examine the full impact of these deals.

Crown Money Management’s chief executive Scott Parry said BT deals can be useful but warned some transfer fees are charged at 2 per cent.

National Australia Bank’s head of consumer cards Andrew Chalcroft said BT deals give customers “a bit of breathing space.”

“A balance transfer can help you get back in control of your finances because you’re not having to pay any interest at the same time as paying down your credit card,’’ he said.

“I encourage customers to set a reminder in their calendar to make sure they pay it off in full in time; they’ll also see this information on their credit card statements.”