Money musings, financial commentary plus the rambling wit and
wisdom of the team from Mozo - Australia's money info zone
Thinking of buying that dream home this year? What about annihilating your debt for good? Don’t rely on luck to stay on top of your money matters. Read our fun infographic to roll your way to financial health in 2012!
We all want to erase our debt and to live in a hypothetical nirvana called “Debt-free-land,” but what should we do when our credit card debts run out of control? One solution is the balance transfer credit card, which allows you to carry over your existing debt onto a credit card that charges a lower ongoing interest rate.
If you want to start your journey to being debt-free, you’ve got to pick a way of getting there. With the help of our award-wining health check tool, we’ve taken the average $3000 credit card balance to compare a standard “big four” bank credit card* against some of the best balance transfer deals currently available. You can beat the banks, but it means picking a card based on how quickly you can pay back the debt.
1. Taking the bus
The longest and most expensive route to Debt-free-land is choosing the minimum monthly repayment option. Say you pay $60 in monthly repayments, it would take you at least 9 years to pay off a $3000 credit card balance if you use a standard “big bank” card and cost you $4004 in interest and fees. But if you are still keen on paying minimal repayments, the Australian Defence Credit Union Low Rate Visa Credit Card is a great option. With a 4.99% introductory balance transfer interest rate for 9 months and a 10.99% ongoing rate, you could save a whopping $2900 in interest and fees compared to a standard “big bank” card. Alternatives such as the Bankwest lite and Aussie Mastercard are similarly competitive. While debt-freedom is undoubtedly going to take longer with minimal monthly repayments, using any of our nominated options will save you at least $2872 in fees and interest compared to a standard credit card.
2. Get behind the wheel
If you can afford to make slightly higher monthly repayments – say $200, you could reach “Debt-free-land” in one or two years. We recommend NAB’s low fee card, for its low 0.99% introductory balance transfer rate for 9 months. You could pay off a $3000 debt in 15 months and save $429 in interest and fees with this card. The Coles Group Source card and Aussie Mastercard are also worth a look when you browse the balance transfer card showroom. By switching from a standard bank credit card to one of these, you’re looking to save at least $409 in fees and interest.
3. Jet-setting, first class
You’ll be holidaying at Debt-free-land in no time if you want to get rid of your debt fast and can afford to make big payments – say $1000 a month, There are a number of cards charging no annual fees and 0% on balance transfers. The Virgin Flyer Credit Card offers 0% for 9 months but the Coles Group Source Card and BoQ Low Rate card are also worth checking out. You’ll pay no interest at all, saving $153 compared to a standard card and clear your debt in 3 months.
Have a question about Balance Transfer Credit Cards? Get answers about all things finance-y on Mozo Answers.
*Standard card assumes card attracting 20% p.a interest and $50 annual fee.
20,000 bonus points and 4 free flights every year. Sounds good, right? If your enthusiasm is matched by your scepticism, you wouldn’t be alone – free lunches are rare, especially in bank-land. The good news is that Virgin are certainly making this lunch pretty damn cheap.
What’s on the menu?
- 20,000 bonus velocity points (if you spend $5,000+ within the first 3 months)
- Four 2-for-1 Virgin Blue flights every year (if you cover the credit card fees)
- A 6 month intro balance transfer rate of 2.90%
- Travel accident insurance and concierge service
What’s it worth?
A flight from Sydney to Melbourne will cost you 9,800 velocity points, so the bonus 20k points will bag you two one-way tickets. To earn the same amount of points you’d have to spend at least $20,000. Add to that the four free flights each year and you’re looking pretty good.
Compared to other cards on the market, factoring in the free flight and bonus points, it’s a clear winner for domestic travellers. Check out our rewards revealer for all the details.
The bill
With an annual fee of only $99 it’s an especially cheap platinum card, even better when you consider all the goodies.
In the doggy-bag
Bonuses are great, but at the end of the day you are left with a tempting piece of plastic, so it’s worth knowing how it fares as a day-to-day credit card:
- Interest rate of 20.99% and 44 interest free days
- Earn 1 velocity point for each $1 spent up to $1,500 a month, 1 velocity point for every $2 after that.
If your stomach is grumbling, check out the Virgin Flyer Credit Card on Mozo now.
It’s the third week since we launched Mozo Answers and the questions just haven’t stopped coming! A big topic of conversation this week has been about debt consolidation, mainly squared around the best way to consolidate and pay off numerous debts as one.
There are a fews to do this, namely: using a credit card balance transfer, debt consolidation personal loan or through borrowing on your home’s equity. Each have different benefits and drawbacks depending on your circumstances, so I’ve run the rule over them to help give you a clearer picture.
Option 1: Credit Card Balance Transfers
In my opinion the best option is to take advantage of one of the balance transfer credit cards. Simply pay off all your debts with an existing card, then transfer the balance onto a new card with a balance transfer offer. Some cards are currently offering extremely low rates for long periods of time. For example, ANZ has 2.9% for 18 months, NAB has 0% till the end of the year and Westpac has 0.99% for 9 months on particular cards. Using a standard credit card* and an average credit card balance of $3,000, I used Mozo’s nifty Credit Card Health Check tool to run a few scenarios to illustrate the potential savings to be had.
| Repayment Amount | Cost on Standard Card | Cost on Balance Transfer Card | Total Savings | Top Balance Transfer Card |
| $100 | $1621 over 43 months | $354 over 33 months | $1267 and 10 months | ANZ First |
| $250 | $397 over 14 months | $71 over 13 months | $326 and 1 month | Westpac 55 day Mastercard or Visa |
| $500 | $197 over 7 months | $9 over 6 months | $188 and 1 month | Westpac 55 day Mastercard or Visa |
As you can see, there’s a whole lot of interest to be saved. This is particularly evident in the first scenario, where making slow but steady payments of $100 a month on an ANZ First card could save you $1267 and a whole lot of time to boot. Conversely, if you’re paying it of in big chunks you’ll pay barely any interest at all with the Westpac 55 day Mastercard or Visa!
Option 2 – Debt Consolidation Personal Loans
Another option is to take out a debt consolidation personal loan. In short, you roll all your various outstanding debts into one loan which you then pay off at the rate set by the lender. They’re a decent option, but these loans tend to feature much higher rates than balance transfers. That being said, with some rates below 10% they are still potentially a lot cheaper than a credit card’s purchase rate (which can go as high as 23.5%) and are well worth looking into if you want to avoid the temptation of having another credit card in your possession.
Option 3 – Home Equity Loans
Finally, for those who have the option, a third avenue would be to look at borrowing from your home’s equity (for example line of credit home loans). This would allow you to consolidate your loans at a home loan rate much lower than what you would see in most personal loans. They won’t be as low as balance transfers, but if you’re looking for long-term solution it’s a very viable fix as the ongoing rate is far lower than that of a credit card – the flip side is that as the payment term is much longer you may end up paying more interest.
If you’ve got more questions or you’re a finance expert ready to do some answering yourself, head on down to the Mozo Answers forum.