Is your credit card debt getting out of hand? You’re not alone – more than one in six Australians are struggling with their own credit card debt, according to ASIC.
While living paycheck to paycheck, saving so frugally you live like a hermit or straight up fleeing the country and living in the Andes might seem appealing, you don’t have to do any of those things. Not if you properly utilise a credit card with a balance transfer to clear your debts.
What is a balance transfer?
A balance transfer is the process of transferring existing credit card debts from one card to another, usually with a different provider. Balance transfer cards come with much lower interest rates – often as low as 0% – for a limited period of time, known as the honeymoon or promotional period.
The promotional period with the low interest rate can last for varying amounts of time. Some are as quick as three months, while there are now cards offering balance transfers for as long as 26 months. The rationale behind using balance transfer cards is to repay your credit card debt without having an intimidating interest rate looming over your head. If you had a 0% interest balance transfer for 24 months, then that’s two years you’ve got to pay off that debt interest-free!
Example: Lorne balance transfers his debts
Lorne Mower has over $3,000 worth of credit card debt built up, and he’s struggling to pay it off. His current card has an interest rate of 17%, and at his current rate of repayments ($150 a month), it’ll take him two years to pay off this debt and will accrue nearly $500 extra in interest charges.
He can’t quite afford to pay off more than this yet, but he finds a balance transfer card that’s offering 0% interest for 24 months – the length of time it’ll take him to pay off his debts. He opens this card and fully pays his debt off within the promotional period. Therefore, he pays not a single cent in interest.