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How to crush your credit card debt (and avoid it getting worse over Christmas)

Male hand holding credit card above reader. (Source: Getty)
Collectively, Australians overpay $1.66 billion annually on our credit card balance. (Source: Getty) (BrianScantlebury via Getty Images)

Yes, we are heading into the silly season but there’s no reason for it to get stupidly expensive, or for it to hurt your long-term financial health.

Australians already collectively carry forward a monthly credit card debt of $17.7 billion. And although that figure is down from $27 billion in March 2020, it’s still about one-third of the total that is owed on credit cards.

People who roll it over from month to month are known as ‘revolvers’.


The trouble is, if this is you, you may be a revolver with a revoltingly high interest rate.

Exclusive research for Yahoo Finance by data house Mozo has revealed that, as a nation, we are overpaying $1.66 billion annually on our credit card balance.

Here’s why and how to avoid it

The dirty little secret of the banking world is that credit card interest rates have barely budged since 2008, despite the official Reserve Bank cash rate plummeting from 7.25 per cent - when the credit crack-up hit - to an unprecedented pandemic setting of 0.1 per cent.

The average credit card interest rate has remained around 18 per cent that entire time.

Even worse, Mozo reports the differential between the best and worst card on its database has blown out to 17 per cent. The cheapest card charges just 7.49 per cent (G&C Mutual Bank), while the most expensive levies a punitive 24.5 per cent rate.

That means a switch can save you a lot of money.

As Mozo spokesperson Tom Godfrey told Yahoo Finance: “If you’re carrying a balance forward on your premium credit card, something as simple as switching to a leading low-rate card may reduce your monthly interest repayments and could help you pay down your debt sooner.”

Don’t forget that, until international air travel opens up again, paying top rates for rewards programs may not be worth it.

“Although it might change as international travel becomes widely available, at the moment it’s still hard to justify paying sky-high interest rates on premium credit cards,” Godfrey said.

And of course, if you are a ‘revolver’, the lower your interest rate, the more your monthly repayments chip away at your debt rather than going straight into the credit card provider’s coffers.

A table showing the best low-rate credit cards.
A table showing the best low-rate credit cards.

Mozo’s research shows that by failing to switch to the lowest-interest card, Aussies are throwing away $138 million a month in total.

But did you know there is actually a way for us to save even more than that? Indeed, a way to pay no interest at all on your accrued debt?

Your ‘get-out-of-jail-free’ card

A zero per cent, balance-transfer credit card lets you do exactly what it says on the tin: transfer your balance and pay no interest on it for a period of time.

There are dozens available right now for up to 36 months and the best are shown in the table below.

A table showing the best zero-interest balance-transfer cards.
A table showing the best zero-interest balance-transfer cards.

As always though, nothing is for nothing.

You have to be clever to use these cards to clear your debt.

First of all, divide your debt by the number of pays in the interest-free period. So, if you have a 36-month, 0 per cent deal and are paid monthly, divide your debt by 36.

Can you afford to make that level of repayment each month? If not, just do whatever you can manage.

But don’t miss that one of the ways these cards claw back their generosity is that if you have any balance left at the end of the interest-free period, the so-called revert interest rate will be punishing. Think 22.24 per cent on that top Citi card.

But the other sting in the tail is that any new spending you make on the card will attract a similarly nasty rate. So, quite simply, don’t make any.

Sticking balance transfer cards in ice in the freezer (either metaphorically or literally) and doing your damnedest to repay the debt within the interest-free window are the two ways to make them work.

What if you can’t clear your debt in that time?

If you simply can’t discharge your debt in the allotted window, repay what you can and make another zero per cent transfer at the end of the period.

Don’t do this more than twice though as it will start to negatively affect your credit score.

With Christmas around the corner, get transferring your existing debt today.

And keep it smart this silly season. There is even enough time left until December 25 to use good old-fashioned lay-buy.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at Follow Nicole on Facebook, Twitter and Instagram.

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