Published on August 19, 2015 1:53 pm, by Jen Bakker
Recently some of my girlfriends have started using the Money Brilliant app. Happy days for me as it has been the perfect opportunity to pick their brains about their money concerns.
The winner is personal debt, most commonly credit and store card debt. Cards with balances ranging from moderate to high. Cards that hover around the limit month after month, as the card holder makes payments that cover interest, fees and enough of the balance to allow them to spend again next month.
Making payments is part of the pay day routine. For some its just the way it is, for others a little demoralising and for lots there seems to be no way out. Another payment to the credit card. And another. This cycle can go on forever. The banks like you. They are happy to collect your interest and charge you fees. If you’re really lucky they’ll increase your limit so you can spend more and pay more.
Time to take control
What can be done? First the decision to stop the cycle. It’s not enough to pay off the debt. You can pay off the debt and be in the same position again within a year. Along with paying off the debt needs to come the commitment to spend within limits. This takes a firm resolve and continued awareness.
A good starting point is to research balance transfer facilities.
Many banks offer balance transfer facilities on new credit cards. This is an interest free or low interest period for clients to move the funds from their existing credit card/s to the new low interest facility. If you go with one of these cards, your intention would be to use this grace period to pay off the entire balance (or as much as possible).
Some of these cards give you a specific period of time with no interest charges, so all payments made come straight off the balance of the card.
It’s worth being aware that generally an annual fee will be charged. Where the card is used for purchases, funds paid off are credited to the purchases first before the balance transfer. Cards often have high interest rates for purchases, and may revert to a high rate at the end of their grace/interest free period
Banks would expect that you have a clean credit history. This would include both your credit report being clean and your last six (or twelve) months worth of statements showing payments being made by the due date. Where this is not the case, you can speak to the bank to see what they need you to do for you to be in a position to take advantage of one of these cards.
Where to now?
Here’s a website that compares low interest credit cards and provides information to allow you to make an informed decision –
I recommend paying specific attention to the section down the bottom How do balance transfers work?
If it were me, I would have one of these cards which I would transfer all my credit card balances to. I would calculate the interest free period and ensure my repayments would allow me to repay the entire balance in this time frame. I would then make future purchases out of my debit account, thereby not needing to repeat the exercise twelve months down the track. If I needed a card for emergencies or day to day purchases, I would get a small limit ($2,000) 55 days interest free credit card which I could pay off in full every month.
Breaking the credit card cycle means paying off the debt and spending less than you earn.
Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.