If you find yourself in the situation that you are unable to pay your credit card debt balance off each month then there are steps you can take to reduce your interest charges.
1. First thing you should do is understand what the interest rate on your existing credit card is. If you are holding a rewards type credit card your interest rate will be up around the 20% mark. Low rate cards are currently (July 2010) around 12%, so on a $2,000 balance this represents around $160 a year difference in interest charges. You should also read Rewards Program Credit Cards, this article explores the costs of reward cards.
2. Second thing you should do is search for a balance transfer credit card. These cards offers a range of introductory interest rates on balances brought over from your existing credit card. Introductory rates range from 0% for 6 months to 4.9% for the life of the balance. You should also read Balance Transfer Credit Cards, this article explores ways to maximise balance transfer offers.
3. Make sure you pay your monthly repayments on time. Credit card companies really slug you for late repayments on your cards. Late payment charges can range from around $10 to $40. As a starting point set an auto repayment from your saving account for at least the minimum repayment on your card.
4. Look for a better deal. Many Australians hold credit cards the banks offered to them. There are now many low rate, low fee credit cards on the market. And unless you are spending more than $10,000 a year on your card and paying the balances off each month you should be opting for such a card.
If you can't pay off your full credit card balance each month, try to use your own money rather than your card. At best you might be getting 5 to 6 per cent interest on deposit funds, so why pay 10 to 18.5 per cent to use somebody else's money. This might mean using a debit card to give you the same plastic convenience as a credit card. If you only use your card for irregular convenience purchases of petrol, take-aways or the occasional small purchases and don't need the added benefits such as reward programs, it is probably not worth paying a fee for a card. Stick to a no-fee, low-interest, no-free-days card. If you want the benefits of a higher interest rate card with a fee, and you aim to pay in full by the due date, choose the one which offers the lowest annual fees or best benefits to suit your lifestyle. Such as travel rewards, discounts on mortgage fees, travel insurance, purchases insurance. If you use the card regularly, try the cards which waive the following year's fee if you spend over a certain level the previous year. One alternative if you are disciplined is to have two cards. Use the card which offers interest free days for all your purchases to take advantage of the various financial and lifestyle benefits offered, and pay in full on the due date by drawing a cash advance using a low interest, fee free card. This way, you get the best of both worlds - interest free days from one card and a low interest rate from the other. The cheapest way of all however is to pay everything by the due date every month, or don't use a card at all.
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