Credit where credit’s due

Most of us have a credit card and to avoid a mountain of debt, there are simple rules to live by to keep you in the black.

cfeditYou can really tell that we are well and truly into the New Year when our letterboxes and emails are bombarded with every credit card offer under the sun, all of them promising to be the best ever deal and implying you would be mad not to take it up.

It all sounds so easy, zero percent interest, nothing to pay. Some of these offers are actually very worthwhile as long as you read the fine print and follow the “rules”.

Let’s look at some of the zero percent interest balance transfer credit cards out there. What a great idea: transfer all my credit card debt over to a new card and pay no interest. It’s a great offer – but just look out for the traps.

The zero percent generally only applies to the amount you have transferred over. So any other purchases you make on that card attract the normal interest rate. You also need to be careful with some of the offers. As soon as you make a purchase on them the whole debt has interest charged even the balance transfer. Ouch.

If you follow the rules on these cards and put in a plan to make sure you pay them off by the end of the interest-free period, then you can be significantly in front. The average credit card holder in Australia pays approximately $750 a year in interest.

That almost pays for a weekend away, doesn’t it? You just need to make sure you don’t build the debt back up again.

Why do banks put these cards and offers out you might ask.

After all why would they give away free money? Banks know that if you have credit card debt now, generally you will have it all the time. Zero percent offers are a fantastic way for banks to gain more customers on their books as they know they will make money off them in the future.

This creates a few issues for most people. After all, it is very hard to get through life without a credit card of some type. Ever tried paying something online using cash?

There are a couple of easy ways to make sure the debt doesn’t pile up again. One of the simplest things is this – don’t use your credit card unless you have the cash to pay for the purchase. Sounds simple but this is where most people go wrong. They forget to transfer the funds across to the card. All of a sudden the small purchases add up and you have another large credit card debt. Another ouch.

For those who don’t have the discipline to keep the card under control, my advice would be to ditch it and replace it with a debit credit card.

These work in a very similar way to a credit card but the main benefit is that you are only using your own money. You can use them in shops, online and over the phone. Nearly every bank is now offering these cards and they make life easier for those of us who can’t control credit card spending. Simply put, if you have no money on the card you cannot spend on it. Not so painful that one.

The most important thing to keep in mind with all credit cards is that you will never receive something for nothing. However, if you work your money correctly you can minimise the interest you pay and perhaps have a smile on your face when you open your credit card statement.

About peardrealestate

Peard Real Estate is an award winning network of boutique offices throughout Western Australia delivering innovative property solutions, services and results for home owners, landlords and investors.
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