Get the Banks to Reward you this Christmas

With Christmas just around the corner, consumers are forecast to embark on a spending frenzy and wave around their plastic for gifts, entertainment, food, drinks and holidays. Last year we spent a total of $37 billion over the Christmas period. The Westpac - Melbourne Institute Survey of Consumer Sentiment index is up by 32.8 year on year. Westpac’s Chief Economist, Bill Evans said “Retailers should still be encouraged given that opinions on “whether now is a good time to buy a major household item” are still up 58% on a year ago”.

As consumers ramp up their credit card spend during December, they too have to be wary of the pinch they will feel post Christmas when their credit card statements come rolling in. This is especially the case when their spending capacity has exceeded their serviceability to make repayments.

Below are a couple of pointers to help consumers manage post Christmas credit card debt.

Use a low rate card

With rates ranging widely from 9.39% to 20.74%, it is almost essential to find the right card that will save you interest. Make sure that the credit card you use is the most suitable for your spending patterns. If you don't pay off the balance in full each month, choose a card with a lower rate. It may not offer any interest-free period, but the lower interest rate should save you more in the long run.

On top, different interest rates may apply depending on how your use your card. The rate that most advertised is the purchase rate, which is charged when purchasing goods and services. A significantly higher rate is generally charged on cash advances from the bank. These cash advance rates can be as high as 20 per cent, and keep in mind that interest is charged immediately on cash advances.

Interest Free Days don’t always mean no interest

Interest-free periods offered on credit card accounts do not apply to cash advances. In most cases, you will pay interest on that cash right from the time you withdraw it. An interest free period doesn’t always mean no interest. Depending on the card, if you don’t pay your account in full by the due date, the interest free period does not apply. Interest will be charged on both last month’s purchases and your current month’s purchases – until you next pay your statement in full by its due date.

Balance Transfer

If you find yourself with a significant balance on your card attracting interest a new card that offers a zero or low interest balance transfer rate might just be what you are after. Shifting your outstanding balance from an existing credit card to a new one can work a treat if you are smart - but you do need to be properly informed to avoid falling into some potential traps. For a savvy consumer, a credit card offering a zero per cent balance transfer rate can be an effective method of minimizing interest charges. To make a balance transfer card work for you it’s best not to use the new card for future purchases and make sure you pay off the balance in full at the end of the balance transfer period.

Pay more than the Minimum Repayment

Don't be content just to pay the minimum payment amount. For those who can't pay off the whole balance on their cards, it's important to try and pay as much as possible each month. Paying just the small minimum required each month will consign you to long-term revolving debt incurring enormous total interest charges over time. Credit card providers have lowered the minimum payments from 3 or 4 per cent of the outstanding balance to as low as 1.5 per cent in some cases in recent years. If you can't pay more than the minimum, it's probably time to consolidate your debts a part of your home loan or a personal loan at a lower interest rate.

Are you getting the best deal? Click here to compare credit cards.

Source: Infochoice.com.au