Personal Loans Australia :: Articles
SHARE

Share this article!

Infestation of sweet deals

Infestation of sweet deals

They look like an easy solution to your credit card debt ...
but balance transfers come with complex arrangements that can add to your woes.
Consumers are switching to credit cards with low balance-transfer rates in a bid to pay off debt faster but unless they go into these arrangements with their eyes open they might find the deal they get is not what they expected.

They need to make sure the interest rate they pay at the end of the introductory period is the normal purchase rate and not a higher rate.

More particularly, they need to recognise that any spending on the new card will attract interest immediately at the standard rate, not the lower balance-transfer rate, and could negate much of the benefit they get from the low-rate offer.

The chief executive of the banking industry research group InfoChoice, Shaun Cornelius, says there has been a lot of inquiries about balance-transfer offers on the company's website.

"Balance-transfer deals are the most popular cards on the site," Cornelius says.

"People want to get their debt down and they see the low interest rates on these products as a way of doing that.

"In other cases they are dealing with household debt stress and they are looking for a repayment holiday."

Cornelius says using a balance-transfer offer to pay debt faster makes sense but it has to be the right offer and the card holder has to be disciplined about how the card is used.

He says that if people are trying to reduce credit card debt, they should be looking for a card that offers a low rate as a long-term option.

The accompanying balance-transfer cards table shows all the low-rate cards in the market with balance-transfer offers. What is important to note is that of the 13 options available, four revert to the higher cash-advance rate. They are Citibank's Clear Platinum, National Australia Bank's Low Rate Visa, Commonwealth Bank's Low Rate Credit Card and Westpac Low Rate.

In the case of the Citibank card, for example, the issuer offers six months at zero interest and then any outstanding balance would start to accrue interest charges at the cash-advance rate of 20.74 per cent, not the 10.99 per cent purchase rate.

Cornelius says card holders should make it a rule that if they take up a balance-transfer offer they should not make any purchases on the card during the offer period.

"The way these offers work is that the balance you transfer on to the new card is paid off first," he says. "All new purchases accrue interest at the reversionary rate from day one and that balance is not touched until the balance you have transferred is paid. You need to avoid spending on the card during that period. An option is to have a second card for spending so that you don't have to touch the balance-transfer card."

Cornelius says that if consumers avoid cards that revert to a cash-advance rate and follow the rule about not spending during the offer period, they can save money.

The balance-transfer savings table shows the outcomes for a number of different card offers. Assuming a $10,000 balance transfer and no additional spending, the interest savings can be anywhere from $1402 to $4389, depending on the terms of the deal.

The balance-transfer offers that last for six months and then revert to a purchase rate about the average of 17.9 per cent provide the lowest interest savings. The consumer would be better off skipping the balance transfer offer and opt instead for a low-rate card.

Cards that revert to low rates at the end of the balance-transfer period offer a much better saving.

According to the InfoChoice data, the biggest saving comes from cards that offer a balance transfer rate "for life" (that is, the rate continues until the transferred balance is paid off). These issuers include Australian Central Credit Union, Citibank (Platinum and Emirates Citi Platinum cards), Community CPS, CUA, IMB and United Community, which all offer 4.9 per cent for life.

Cornelius says something else to pay attention to is what happens to the old card. Some card issuers will automatically close the old card account when they make the balance transfer.

Others leave it up to the customer to decide what to do with the old account. Leaving the old account open may become a problem for people who are trying to cut down their debt.

Published:Wednesday, 1st Jul 2009
Author: 142

Share this article:


Personal Loans Articles

Personal Loan Pitfalls: How to Avoid Common Mistakes in Loan Comparisons Personal Loan Pitfalls: How to Avoid Common Mistakes in Loan Comparisons
When considering personal finance in Australia, personal loans are a handy resource for achieving various financial goals, from consolidating debt to funding a major purchase. Yet, it's essential to approach this financial tool with caution and understanding. Proper comparison of personal loans can be the difference between a financial stepping stone and a stumbling block. - read more
Your Financial Comeback: Rebuilding Credit Scores for Future Opportunities Your Financial Comeback: Rebuilding Credit Scores for Future Opportunities
In the dynamic landscape of Australian finance, the emphasis on a robust credit score cannot be overstated. A favourable credit score serves as a gatekeeper to a world of financial opportunities, determining the ease with which individuals can access loans, the interest rates they will be eligible for, and even the prospects of securing a home in an ever-competitive market. As the average mortgage sizes surge to unparalleled heights, the significance of maintaining an advantageous credit profile escalates in tandem. - read more
Proven Strategies to Boost Your Personal Loan Approval Odds Proven Strategies to Boost Your Personal Loan Approval Odds
Embarking on the journey to secure a personal loan can often seem like navigating through a complex financial landscape. Particularly for Australians, where the market is bustling with a multitude of lenders each with their respective criteria and rates, increasing the chances of loan approval is a pursuit that requires insight and preparation. - read more

Finance News

Australia Gears Up for Comprehensive Financial System Resilience Assessment in 2025 Australia Gears Up for Comprehensive Financial System Resilience Assessment in 2025
27 Mar 2024: .Paige Estritori

The Australian Prudential Regulation Authority (APRA) is positioning itself to inaugurate a widescale diagnostic of the nation's financial heartbeat in the year 2025. This financial health check aims to meticulously analyze the repercussions of unanticipated events on the country's financial stability beyond merely scrutinizing the banking sector. - read more
Climbing Mortgage Arrears Signal Heightened Financial Strain Climbing Mortgage Arrears Signal Heightened Financial Strain
26 Mar 2024: .Paige Estritori

Australian households are navigating a more complex financial landscape as mortgage arrears have climbed to a peak not seen since the outset of the COVID-19 pandemic, according to a new report from Fitch Ratings. The Fitch's Dinkum RMBS index has indicated that, as of the last quarter of 2023, households are falling behind on mortgage payments more frequently, sparking concerns about financial resiliency amid ever-tightening economic conditions. - read more
New Investment Approach for Australian New Homebuyers New Investment Approach for Australian New Homebuyers
25 Mar 2024: .Paige Estritori

Recent statistics have highlighted a notable shift in the strategies Australian first-time homebuyers are using to infiltrate the challenging property market. Analysis of 2023's purchasing trends indicates an emerging investor mentality among new buyers. - read more

Need Help Finding a Loan?
Find out now if you qualify and compare rates, offers and options from multiple lenders - without a credit check!
Loan Amount:
Postcode:
All finance quotes are provided free (via our secure server) and without obligation. We respect your privacy.

Knowledgebase
Mortgage Document:
The physical contract agreement that a Mortgagee (lender) enters into with a Mortgagor (borrower) outlining the precice terms of a mortgage loan.