How To Save $1000 In 40 Minutes

We’re all partial to a little overspend here or there, but if your credit card debt has got out of hand, a balance transfer is a great way to get on top of it (and out of debt) fast. If you’re paying any interest whatsoever on your credit card, you’re paying too much.

Banks are keen to have your business and are always trying to capture new clientele with low or no interest balance transfers. As long as you’re smart about it, you can make special offers work to your advantage. Here’s how to get your credit card working hard for you – instead of the other way around – searching and applying for a new card should take no more than 40 minutes.

 

1. Put your credit card to the test

Start by putting your credit card through the wringer and finding out just how good (or bad) it really is. Forget trying to gather the data yourself, use a comparison site and sort the results by balance transfer offerings. You could save more than $1,000 in interest and fees over three years by moving a $3,000 debt from an 18% interest rate to a cheaper credit card.[1]

2. Pick the best balance transfer for your needs

 Once you have a range of cards to choose from you can pick and choose based on the elements that appeal to you the most. Look for a long low (or no) interest balance period, low fees and the most reasonable reversion rate you can find. Reversion rates (some are over 25%) are toxic for your repayment plans and can get you back in deep-debt waters at lightning speed.

 

3. Apply online

Once you’ve chosen a card that suits your level of debt and repayment ability, you can apply online. Applications may include a balance transfer form so you’ll need to have the details of your old card handy.  The credit limit and amount that the new card provider is prepared to accept as a balance transfer will be determined by your assets, income and other outgoings like other credit cards and loans.

 

4. Don’t use your new card

Balance Transfer credit cards are a one trick pony – they’re great to get you out of debt, but not a card you want to have in your wallet for every day spending. Why? Because, buried in the fine print will be an annoying little clause that says “no interest free days on purchases with outstanding balance” – which means you’ll be paying interest on anything you buy as soon as you swipe, until you’ve paid back the total amount owing on the card. Ouch! So just tuck the card away somewhere safe and set up a reminder for yourself a few weeks before the interest free period ends.

 

5. Automate your escape from debt

Pay as much as humanly possible off your outstanding balance every month and consider automating your repayments to eliminate any chance of getting stung with late payment fees. Ideally, you should try to pay back the full amount before the low-interest period runs out. But be warned – minimum repayments are not enough! Credit card companies want you to be in debt so you can pay them more interest. Don’t let them set your repayments, play by your own rules, and make as much of a contribution as you can every month.

 

6. Close the account (or switch again)

If you still have an outstanding balance when you reach the end of the low-interest period (it’s ok, nobody’s perfect) you could choose to either switch again to another balance transfer, or if the debt’s nearly gone, roll it all onto a low rate credit card. You don’t want to do this too many times however, as too many balance transfers can affect your credit rating. If you’re all paid up, it’s time to celebrate by closing the account, cutting up the card and spoiling yourself (by paying in cash.)

 

7. Make the most of your new good money habits

Once the debt is cleared, you can start putting that same amount away each month for things you really want, building up a tidy little cash cushion for a rainy day, a holiday, or make the banks pay you interest with a high interest savings accounts.

After all that, you could be up to $1000 richer.  That’s enough to reward yourself with a guilt-free shopping spree, a fully-functioning suit of armour, or a professional massage every month for a year.

 

About the author:  Kirsty Lamont is a director of Mozo.com.au which helps Australians compare savings accounts, credit cards, insurance and other financial products.  Kirsty was one of the launch team for Virgin Money when it started in Australia in 2003, and also held a senior role at BankWest before joining Mozo in 2007.  A consumer finance expert, she has access to Mozo’s up-to-the-minute data about different financial products on offer.

Link – Mozo site:          http://www.mozo.com.au