Yahoo Finance How to park your credit card debt at 0% for 3 years
Moving your debt to an interest free credit card is basically 'free money'.
With inflation remaining stubbornly high and interest rates likely to go up more, Aussies and their finances are suffering more than ever. The latest uptick in outstanding credit card balances shows how we’ve made a sharp turnaround from the pandemic times when the trend for paying off debt (and cutting up cards) was in full swing. But there is a way to park your credit card debt at zero per cent for three years, even now.
The trouble is that credit card interest rates, no matter what has happened over the years, barely budge. In good times, bad times and even amid global uncertainty or pandemic panic, banks slug Aussie who can’t pay off their balances each month, with 18 per cent interest on average.
Read more from Nicole Pedersen-McKinnon:
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We get outraged and give lots of attention to mortgage interest rate movements, but a lack of scrutiny on credit card rates lets institutions profit.
Zero per cent balance-transfer credit cards
Balance-transfer credit cards are, essentially, designed to get your business. Dozens of providers will accept transfers of the debt of customers of other institutions. Usually, these customers must be ‘new’ to the new institution. To lure you across, these transfers will attract a very enticing interest rate. In fact, multiple providers are currently charging nothing for a period.
The table below, from the Mozo comparison service, shows that you can get up to 36 months interest free. There are also 34 months on offer – from two Bankwest products that carry no annual fee. And there are 32 months interest free available with the Vertigo Visa and NAB Low-Rate Card.
Those cards carry a $55 and $59 annual fee, respectively, though NAB waives the fee in the first year. But be aware the Citi Clear card has a $99 annual fee. The other thing to note on the expenses front is that the BankWest card also charges what’s called a 2 per cent balance-transfer fee and the Citi and Vertigo cards, 1 per cent. But that’s also a small price to pay for 0 per cent interest on your accrued debts for up to three years.
But isn’t this ‘free money’ too good to be true?
Yes and no. It is possible to lose that 0 per cent interest, if you fall into one of the following ‘traps’. The good news is that they are easily avoided and it’s possible to use these cards to help ‘clean up’ your debt at no cost.
The first trap to avoid is new spending on the new card because it will incur an eye-watering interest rate – see the table above again. Remember, interest-free days only apply when you have cleared your card in full the previous month.
The other trap is keeping the card at the end of the interest-free balance-transfer period. The table above shows that all but the Bankwest cards have a ‘revert rate’ in this circumstance, of over 20 per cent.
The way to play balance-transfer cards to financially win is to either pay off your entire balance within the 0 per cent interest period or, at that point, transfer your balance again.
Just be wary of doing this more than twice though, as it will affect your credit rating.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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