Balance transfers – one option to clear the slate
One way to trim the tab is with a balance transfer deal. The period of low or zero interest charges can give credit cardholders an opportunity to make headway on their outstanding card balance.
There are currently over 100 balance transfer cards offering 0% transfers. The interest free period varies, but more than half allow a whole year or more interest-free.
The downside is that simply lobbing your debt from one card to another doesn’t address what can be serious overspending issue. If that sounds like you, make a date to speak with me about developing a plan to get spending under control this year.
Bear in mind too, if you can’t clear the slate with a balance transfer deal before the zero rate period ends, the remaining debt can attract sky high cash advance rates.
That makes it critical to use a balance transfer deal to pay off as much of the debt as possible in the interest-free period.
Or…knuckle down to pay off the debt
An easier solution can be to pay as much as possible off your current card.
If you plan to use this strategy, two steps are critical. First, check to see if you’re getting a good deal on the card. Reward-based credit cards for instance charge some of the highest rates around, and you’re likely to pay a lot more in card interest than you’ll recoup with any freebies.
Next, revisit your budget to see how much you can comfortably allocate to additional card repayments. Sticking to the card issuer’s minimum payments may seem easier on your budget today, but it can drag out the debt for years, even decades. That means paying excessive interest charges – money you could be using to build your own wealth rather than the bank’s.
The main point is that credit card debt doesn’t have to be a financial millstone. There is a range of strategies available to get on top of debt. Contact us to discover which approach can work for you, and start freeing up cash to achieve your personal goals for 2018.
Paul Clitheroe is a founding director of financial planning firm ipac (now known as AMP Advice), Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.