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How to recover from your Xmas credit card blowout

Tuesday, 12 January 2016

Posted by Rebeccah Elley

Did you whip out your credit card one too many times over the silly season and are now dreading your upcoming statement?

With predictions of a $470m post-Xmas credit card hangover for Aussies as a whole, this Christmas spending blowout is sure to be echoed in households across the country.

But rather than having buyer’s regret and wishing you’d bought one less cocktail at your poolside resort, we propose you take this bill shock by the reigns and steer yourself to greener pastures.

How you ask? With a balance transfer card of course.

Consider this: According to Money Smart the average cardholder in Australia has a balance of $4,300 and pays around $700 in interest each year (if their rate is between 15-20%). Whereas, moving this across to a credit card with a 0% balance transfer deal will mean, you guessed it, you’ll pay no interest whatsoever during the BT period. Think of all you could do with $700 extra in your pocket – pay for all of your Xmas presents next time round, perhaps?

But of course that’s only if you use the card the right way. Follow these steps to smash your Christmas debt in no time:

Step 1: Open the ghastly credit card bill

You might want to stuff that credit card statement in a shoe box where it can quickly be forgotten, but it won’t be long until you receive that payment reminder. So bite the bullet and assess the damage.

Step 2: Crunch the numbers

If you’ve spent up big in the last few weeks, you might not be able to pay off your holiday debt in one hit. But that doesn’t mean you should only pay the minimum repayment, as you could see your balance hang around until next Xmas (or even the one after that!).

Instead work out how much you could reasonably afford to repay each month, which will give you an indication of how long you will need the balance transfer offer for. Say you can afford to repay $400 a month, with a $4,300 balance you will require a BT period of at least 11 months.

Step 3: See the sweet offerings in the market

This time of year, the credit card market is teeming with competitive deals, as card providers are more than aware that Aussies are receiving or about to receive their post holiday bill and will be looking for low interest alternatives. So take the time to conduct a balance transfer comparison by checking out some of the top deals currently in the market below:

Credit card Balance transfer offer Purchase rate Annual fee
NAB Low Rate Card 0% for 24 months (2.5% handling fee) 13.99% $59
St.George Vertigo Platinum 0% for 20 months 12.74% $99
Citibank Platinum 0% for 18 months 20.99% $249
Virgin Money No Annual Fee Card 0% for 18 months (2% handling fee) 18.99% $0
Westpac Low Rate 0% for 18 months 13.49% $59

You might have noticed that in the table some of the balance transfer offers have a handling fee of between 2% and 2.5%. This is an upfront fee that you have to pay to the new card provider when you move your balance across.

For instance, on a $4,300 balance a 1.5% handling fee will cost you $64.50. If you want to spread out your repayments over an 18-24 month period, paying this fee could be economically worth it, as it only works out to be a few dollars each month for accessing the 0% interest balance transfer offer.

Step 4: Make payments a no brainer

You’ve done the maths, so once you have that balance transfer card in your pocket make things simple by setting up a direct deposit from your bank account to the new card provider. That way you’ll pay off your debt without thinking about it, have the peace of mind you’re free of the bite of interest, and it will be blasted before the BT period comes to an end.

Step 5: Steer clear of purchases on the card

It’s a great feeling demolishing debt but if you’re not careful a balance transfer deal could lead you down the garden path.

Here’s how: Say you set up automatic payments and start paying down the balance (how thrifty of you!) but then you see that Xbox One is on sale or for the ladies out there those new Louboutin heels. One splurge, won’t hurt right? Well… word of caution any new purchases made on the balance transfer credit card have to paid off first. This will mean if you bought that Xbox One for $400, for that month none of your payment will go towards paying down your debt and you’ll be one month behind on your debt demolishing schedule.

Step 6: Make cash withdrawals a no go

Another thing you’ll want to avoid is withdrawing cash from an ATM, as the 0% balance transfer rate doesn’t apply and you’ll instead be slapped with the generally much higher cash advance rate. If that’s not bad enough, there’s no interest free days for cash withdrawals, so you’ll be charged that high rate straightaway.

Step 7: Love ’em and leave ’em

When moving your balance across to a BT deal it’s important to keep in mind, these card providers aren’t offering such low rates (or no rates) out of the kindness of their hearts. The main reason they introduce these BT offers is to score new customers, who they hope will stick around after the credit card has reverted from that 0% balance transfer rate to a much higher purchase or sometimes even higher cash advance rate.

So beat them at their own game, by keeping an eye on the market before the BT period ends and making the switch to a better deal.

Step 8: Congratulate yourself

If you find yourself at the end of the balance transfer period with a balance of zero, or near to it, it’s time to give yourself a pat on the back or maybe you’ll reward yourself by finally splurging on that Xbox or Louboutins!

So as you can see, using a credit card that comes with a balance transfer deal the right way could save you some significant coin but by the same token there are plenty of traps to avoid.

For more tips on managing your credit card balance, read our tell all guide or compare a greater range of balance transfer deals in our comparison section here.

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