If you’re serious about paying off your personal credit card debt when you take up a promotional balance transfer offer, then you may want to press pause on all credit card spending.
Are you thinking about moving a credit card balance to a new card with a lower promotional interest rate? To make the most of a balance transfer offer like this, you may want to pay off or reduce the balance you transfer within the promotional period – while always being mindful of your other financial commitmentsdisclaimer.
To help you achieve this, there are a few things to keep in mind if you don’t want to end up in more debt than before. Here, we focus on some spending strategies – you can get more tips for managing a balance transfer here.
Avoid buying stuff with your new credit card
If your goal with a balance transfer is to pay off or reduce credit card debt, then why grow that debt by using the credit card you’ve transferred a balance to to pay for more things?
Remember, the promotional interest rate generally only applies to the balance you’ve transferred. Any other transactions on the card, like purchases, will usually attract a higher interest ratedisclaimer.
That’s a reason why, when considering a promotional balance transfer offer, it’s important to read the offer and card terms and conditions to understand the different interest rates, fees and terms that apply.
At ANZ, if you use the credit card you’ve transferred a balance to for purchases, you would need to pay off the full closing balance (including the balance transfer amount) and any amounts payable immediately by the due date to qualify for an interest-free period if one applies to the carddisclaimer.
What’s more, any credit card repayments you make will go towards the debt with the highest interest rate first. So, if the interest rate on purchases is higher than the promotional balance transfer rate, this means you’ll need to pay off any purchases (or other higher interest transactions) in full first, before the amount you pay will be applied to the transferred balance.
For example, say you transferred a balance to a new credit card with the goal of paying it off in full within the promotional period. If you immediately purchased a TV on that card, and the interest rate that applied to that purchase was higher than the promotional interest rate, then your monthly repayment would go towards that first. Unless you were able to rejig your repayments to accommodate the TV, it could mean that you don’t pay off the outstanding balance before the promotional period ends.
Consider cancelling your old cards
You could consider cancelling your old credit card (or cards if you have more than one) if you’re transferring a balance over to a new credit card. By doing so, you remove the temptation to use those old cards which might help you to avoid amassing new debt (on those cards, of course). It may also mean that you no longer have to pay fees or charges on those cards, depending on the terms and conditions that apply, which might free up some money to help you save or pay towards the transferred balance.
Re-assess your needs once you’ve paid it off
Once you’ve paid down a balance transfer, it could be a good time to reassess your needs. Is the credit card you transferred your balance to still the right card for you?
Again, check the interest rates, fees and other terms that apply. Some credit cards have a great promotional balance transfer interest rate but revert to a higher interest rate after the promotional period ends. It may be worthwhile shopping around to find a credit card that suits you. You might also want to consider whether ANY credit card is right for you.
And if you do make the decision to start spending on a credit card after you’ve paid off a balance transfer, consider working out a budget to help keep you on track.