When it comes to credit cards and credit card debt it is always best to be cautious.
Australians owe a record average of $3000 on plastic – and Banks make so much money from credit card fees and credit card charges which is why they are so willing to sign you up for another credit card.
Total fees paid by households on credit cards rose 13 per cent in 2006 alone, four times the underlying rate of inflation according to Cannex Research Group.
Here are some of the Traps and Tricks when it comes to Credit Card Debt.
1. Minimum repayments
Once set at 5 per cent of the outstanding balance, the minimum repayment rate has been lowered, sometimes down as far as 1.5 per cent of the total balance. At this level, it means that a balance of $3000 can take as long as 40 years to clear, during which time you will have paid more than $21,000 in interest! Always pay more than the minimum.
Solution - pay off your balance in full each month.
2. Balance transfer offers
Most of the ‘low-interest’ or ‘no-interest’ offers apply only to the transfer balance, and not to new purchases. So it’s important to pay the transfer balance off within the low-interest period and not to make any other purchases on the card. These cards should be used only if you are going to pay the balance off in full each month.
3. Interest is the killer
A recent survey by consumer group Choice found that in some cases a payment that is just one day late means the interest-free period of up to 55 days is forgone – interest is calculated right back to the date of the purchase. In other cases, some cards offer no interest-free period for new purchases if debt has been carried forward from the previous month.
Some cards even charge interest on the interest you owe!
4. Multiple rates
The advertised rate, or headline rate, usually applies only to purchases. A higher rate of up to 27.99 per cent applies to cash advances. Sometimes there is an even higher rate and a penalty fee for late payments.
5. Fees
Annual fees range from zero to $1000. Watch in particular for overdrawn fees, where you are slugged for exceeding your limit, and late fees.