Low Balance Transfer Until Card Is Paid Off

Clean up your credit card habits

With Australians having racked up almost $50 billion in credit card debt as of December, many families are now feeling the effects of a record Christmas and holiday season financial hangover.

It's usually February when letterboxes are under the most stress from heavyweight credit card bills and this is also the month when people start to make that belated New Year resolution to better manage their spending next year.

For those who don't, or can't, pay off their credit cards in full, high interest rates will rapidly increase the total debt. This often means paying off the summer spending spree well into winter, or worse.

And if you pay the minimum amount each month, it can also mean you may never pay it off in full, as annual fees and compounding interest can keep the debt bubbling along for decades.

New research soon to be released by financial institution Citibank Australia shows as a nation we are getting better at repaying our credit cards in full.

It found that last year 59 per cent of people said they paid off their credit card in full each month, whereas three years ago it was only 40 per cent.

Last year 9 per cent of people said they paid the bare minimum each month, whereas three years ago 17 per cent of card users paid the minimum.

But the survey also found a difference between the sexes. About 62 per cent of men pay off their card each month, while only 56 per cent of women do.

Women also could be in danger of racking up higher interest charges than men, with 13 per cent of women last year paying the minimum amount on their card each month, compared with 6 per cent of men.

Citibank spokeswoman Kristen Kaus says the research also found that households have different repayment trends depending on their income.

Whereas only 4 per cent of high-income households pay the minimum each month, 16 per cent of low-income households those earning less than a combined $50,000 a year do likewise.

Earlier research by the company found that people are increasingly using their credit cards to pay essential bills rather than for discretionary spending.

Phone bills, car insurance, car registration, food and groceries, electricity, gas and water were regularly paid by credit card by up to 30 per cent of people.

In turn, about one in three of these essential bill payers also do not pay off their credit card balance in full each month.

"These people could be said to be playing catch-up because they do not have sufficient cash flow to pay all their bills and are being charged high rates of interest in order to cover them," Citibank says.So what is the best strategy to get your credit card under control?

Important Things You Need to Know About Balance Transfers | Credit ...

At first glance, balance transfers seem like the ideal solution to help you eliminate debt on high-interest credit cards. While they can help you save quite a bit of money on interest charges, you will find that if you really want to save money then you need to pay off the balance transfer before the introductory period runs out.

Most balance transfers require you to pay off your transfer within a certain period of time or the rate reverts to that of the standard purchase rate or an even higher rate, depending on the credit card in question. In some cases, it can even be higher than the rate you were paying originally on your old credit card. The time limit varies depending on the credit cards in question, but, as a rule of thumb, the lower the interest rate, the less time you have to pay off your balance transfers.

The reason you shouldn’t be using your card until you have paid off your balance transfer is because any repayment you make will automatically go towards paying off the debt with the lowest interest. This means that any money you spend on purchases will start accruing interest at the standard rate. So, on one hand, you are trying to eliminate your debt while on the other hand, it is actually growing because you used your card to go shopping.

While not a monetary cost, another issue you might encounter is that if you apply for too many balance transfers, there is a very strong possibility that your credit history will be affected since there will be a larger number of enquiries on your report. The more enquiries you have, the more banks will suspect that you are in financial trouble and deem you a risk.

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