By now, you would have received your credit card statement following the spending spree of Christmas, and the impulse purchases made during the Boxing Day/New Year’s sales. Maybe you overindulged in online shopping over the holiday period.
Credit cards offer a quick and convenient way to purchase goods and services; however, it may be more difficult to keep track of your spending when compared to using cash. If you have substantially increased your credit card balance, or reached your limit, you may be struggling to keep your repayments up to date within the interest-free period.
When paying via credit card we often believe that we will repay the balance within the interest-free days, but that may not always be the case! When you exceed the interest-free period, the purchase interest rate can be around 20% per annum or higher (22%+ p.a.) for a store card.
What are your options to get your credit card debt under control? Here are some alternatives to consider:
BALANCE TRANSFER CREDIT CARD
Most providers offer a balance transfer facility to attract new business. The debt from the existing card can be transferred to a new credit card which offers a reduced interest rate (as low as 0%), for a fixed period. The balance transfer rate can apply for 6 – 24 months depending on the provider; however, any additional spending will incur the standard interest rate of the new card. The key to this strategy is to be disciplined by not clocking up more debt, and to take advantage of the ‘honeymoon’ period to focus on repayments, and ensure that you clear your credit card balance on time. Once the balance transfer period has ended, the rate will default to the provider’s purchase interest rate, which may be higher than the rate on your old card! It is important to check if there are any balance transfer fees, and what other terms/conditions and charges will apply after the introductory period has ended.
LOAN CONSOLIDATION – PERSONAL LOAN
Obtaining a personal loan to consolidate the debt on your credit card(s) may be an option. Many providers offer the ability to consolidate several credit cards, with a lower fixed or variable interest rate, over a loan term of several years. Consolidating your debt should make it easier to manage your repayments, and you may be able to clear the debt earlier by paying more than the minimum amount.
REFINANCE/CONSOLIDATION – HOME LOAN
If you have sufficient equity in your home, you could consider refinancing your mortgage to consolidate your credit card debt. We are currently in a record low-interest rate environment, with some providers offering rates of >4% p.a. With or without credit card debt, if you haven’t reviewed your home loan for a few years, you may be paying too much on your current mortgage!
Consolidating credit card or personal loans into your home loan will allow you to clear these debts sooner if you have the ability to pay above the minimum home loan repayment.
There may be many issues to consider before consolidating debt, or deciding to refinance your home loan. Please contact one of our lending specialists to determine the costs and benefits, and to discuss your options.
Please note that the above has been provided as general advice. It has not taken into account your personal or financial circumstances. If you would like more tailored advice, please contact us today, one of our friendly advisers would love to speak with you.