Credit cards with no-interest honeymoon rates for balance transfers may look appealing to cash-strapped Christmas shoppers, but financial experts have warned Aussies they may not be so attractive after the silly season.
The number of zero-percent credit card offers has doubled in the last two years, but that enticing rate won’t last forever. Money experts say consumers must note the hefty interests rates activated if the total credit card balance isn’t paid off in full at the end of the honeymoon period. According to financial comparison website Mozo, that rate can be as high as 21 percent.
Kirsty Lamont, a spokeswoman for Mozo, concedes these deals can ease the financial strain of the festive season, but she told news.com.au that “these sorts of offers can be dangerous for a number of reasons because cardholders can be tempted to spend more on their card than they normally would.”
“While these offers sound appealing, particularly if you are under financial stress at Christmas, they can be a fast track to high interest rates and very high debt that you’ll find difficult getting out of,’’ added Tom Godfrey of Choice. “Look past the big ‘zero per cent’ headline, look at the details and terms and conditions of the card because there’s often a sting in the tail.”
Research shows a significant number of consumers find themselves caught in this interest trap. ANZ recently revealed at least 30 percent of balance transfer customers fail to repay their transferred debt during the interest-free period. According to news.com, the actual figure is likely to be much greater, because ANZ’s numbers do not consider consumers who accept another balance transfer deal at the end of their honeymoon period. Commonwealth Bank has stated it feels zero-interest credit card offers are a “debt trap.” It has urged regulators to ban balance transfers.
According to the Reserve Bank of Australia, Australians owed $50.7 billion on credit card debts in September. More than $32 billion of that was accruing interest. If you’re tempted to take up zero-interest balance transfer deals this Christmas, Chase Edwards would love to show you a better way. Rather than growing your debt, we’d love to show you strategies for growing your wealth. Contact us on 1300 854 833 today to learn more.