Credit cards have been around for the past 65 years and have quickly replaced cash, personal loans, and laybys as a way to buy essential items for the home. We’ve all been told to pay off our credit card at the end of each month, but let’s be realistic this isn’t always going to happen. Things crop up, unexpected expenses or emergencies occur, and you need to flash the credit card to save the day, and this is where we get ourselves into trouble.
You wake up one day only to realise you have $4,000 owing on your card, and are paying 18% in interest. You are making the minimum repayments, and that’s when you notice at the bottom of your bill it will take 29 years and 6 months to pay it off and you will pay over $9,351 in interest, yikes!
You need to undertake some serious debt consolidation, so you transfer your balance to a 0% interest credit card and make yourself the promise you will pay off the balance within the 24 month interest free period. This means your monthly repayment would have to be about $167 every month to clear off the debt within this period of time.
This looks like a great deal, but there could be a number of pitfalls associated with this option. Many of these cards charge a transfer fee, plus an annual fee. This means you may pay between $120 – $359 to transfer your money to a 0% interest rate credit card. Not as bad as the 18% you were just paying, but that’s still a lot of money.
What happens if you have to put a new purchase on this credit card? A number of these cards will begin to charge you interest straight away on these purchases, you just lost those 40 – 55 days interest free! Suddenly you are trapped right back in that cycle as you struggle to pay off the balance you transferred and the new balance you have just put on the card. It’s no wonder many Australian’s struggle with their credit card debt.
Of course, there is more and more competition out there and a number of credit cards are now offering 0% transfers with no transfer free and no annual fee, however make sure you read their full disclosure statement to ensure you are getting a good deal and won’t be hit by sneaky charges or fees.
If you are looking at consolidating your credit card debt there are a number of aspects you need to be looking at to ensure you are getting the best deal. Everyone has very different circumstances, but there are a number of options available which may better suit your situation including personal loans, informal debt arrangements, refinancing your mortgage, debt agreements or bankruptcy.
A number of our clients go down the debt agreement route where they enter into an agreement to pay off their debts over an agreed period of time, freezing their interest and fees, consolidating all their debts into one arrangement. This option provides you one weekly repayment, so you have peace of mind your debts are being paid off within an agreed period of time often between 3 – 5 years – way better than the 29 years!
Have you ever been stung by a credit card transfer? Let us know in the comment section below.