This week we’re talking about credit cards, and my favourite get-out-of-jail-free card… balance transfers.
Credit card debt is one of the most common forms of debt that Australian’s have, particularly young people, and the reality is if you don’t sort it out now, you’ll just end up becoming an old person with credit card debt! I say this because credit card debt won’t just go away, and no you won’t sort it out with your tax return or your next pay rise, you need to start now and get control of it.
How To Avoid Paying Credit Card Interest
The good news is, if you are committed to repaying your credit card debt, balance transfers can be a great way to do it quickly.
You’ve probably seen deals advertised around the place, like 6 months interest free on balances transferred, or 12 months interest free, or 9 months at 2% or something like that. There are lots of options out there (just google credit card balance transfer and you’ll see how many offers there are).
How it works is, you apply for a new credit card with a low or preferably no-interest period on balances transferred. You can usually do it online and the bank will arrange the transfer for you.
The Secret To Paying Off Your Debt
Next: Cancel your old credit card. This is VERY important, otherwise you may be tempted to start spending again. And whatever you do DO NOT spend any money on your new credit card.
Then set up an automatic BPAY payment from your usual bank account onto the new credit card right after payday, before you’ve had a chance to dip into any of it! The idea is to try to pay off the entire balance during the interest free period, which may not always be possible depending on how long you can get, but also how much debt you have. If you can though, you’ll be debt free before you know it.
In cases where you have a BIG credit card debt, you can repeat this process by applying for another balance transfer at the end of the first cards interest free period, and again and again until all your credit card debt is gone. Just be sure to cancel all your old cards and don’t spend anything new on credit. Ever.
Make sure before you apply though, that you check out the annual card fee (go for one that’s free or less than $100 a year). It’s also important to note that if you have a bad credit history, your application may not be approved.
If debt is a big stress for you, my 8 week Money Makeover covers a whole stack more on how to get yourself out of that black hole and back to focusing on building wealth.