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Christmas debt hangover? Have you considered a 0% credit card?

Christmas debt hangover?

line of credit

Did you know that now more more than half of all cards on the market have a 0% intro deal?

The number of balance transfer credit card deals is on the rise, and is set to continue to do so as banks look to capture a share of people wanting to reduce debt post-Christmas.

Sally Tindall, money editor at RateCity.com.au, said these cards can sometimes be a good tool for debt reduction, but only if used correctly.

 “Zero per cent balance transfer cards can be a useful tool if you have a small amount of debt to clear, and you have a foolproof plan to pay it back before the introductory period expires.

It’s also wise to refrain from using the card to make new purchases or cash advances so the best place for it is the freezer.

These type of cards are extremely popular after Christmas but we are seeing more 0 per cent balance transfer cards offered year on year.”

Tindall warned of a number of fees and other hidden catches attached to 0 per cent balance transfer cards.credit card

“Annual fees have increased to a maximum of $700 in 2015 – more than twice the highest fee charged two years ago, up from $295 in 2013. These fees are charged immediately and for many people it can completely negate any savings from the no interest deal.

The longest intro period is now up to two years and while this might seem like a win, it does attract two annual fees, or three if you’re a bit late cancelling your card.

Interestingly, non-standard intro periods of 14, 15 or 16 months are increasing; 52 cards now have non-standard terms, up from just 2 cards in 2011. This makes it harder for people to know when the intro period finishes.

Banks rely on the fact that some people don’t repay the balance in full during the intro period and revert to an extremely high interest rate of up to 22 per cent.

Many of these deals have one-off transfer fees – known as ‘handling fees’ charged when you move the debt from one card to a new card. These fees are becoming more commonplace too, with around one in five cards charging up to 2.5 per cent of the debt.

These deals can seem like free money, but even some of the best offers can cost upwards of $700 to switch to, so you must do your homework before taking the bait.” 

Some of the cheapest zero balance transfer cards 12 months or less

Company Product Interest rate Max free days Intro period Balance transfer revert rate Ongoing Annual fee Balance Transfer Fee Cost of $2K transfer % of $2K
Bank of Melbourne No Annual Fee Visa 20.49% 55 12 months 20.49% $0 $0 $0 $0
HSBC Platinum Credit Card 19.99% 55 8 months 21.99% $0 $0 $0 $0

Notes: Cards were selected on lowest fees based on a transfer of $2K, then annual fees after 12 months, then longest term. Additional factors such as the interest rate, the balance transfer revert rate and the interest free days should also be taken into consideration. Bank of Melbourne card also available from Bank SA and St George Bank.

Some of the cheapest zero balance transfer cards for 12 months or longer

Company Product Interest rate Max free days Intro period Balance transfer revert rate Ongoing Annual fee Balance Transfer Fee Cost of $2K transfer % of $2K
Bank of Melbourne Amplify Signature 19.49% 55 16 months 20.24% $279 $0 $558 $27.9
American Express Qantas Ultimate Card 20.74% 44 12 months 20.74% $450 1.00% $470 $23.5

Notes: Cards were selected on lowest fees based on a transfer of $2K, then ongoing fees, then interest rate, however other factors such as interest free days, revert rate and ongoing annual fees should be taken into consideration. Bank of Melbourne card also available from Bank SA and St George Bank. Annual fees may be waived in the first year if certain criteria is met.

Source: Finder.com.au

 

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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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