Clearly the easiest way to save on credit card debt is not to have the card in the first place. However, with many stores ceasing to accept personal cheques, and the rise in internet purchasing, it is becoming increasingly inconvenient to get by without the dreaded plastic.
The trick then is how to minimise the interest.
1. KEEP THE LOAN PERIOD SHORT
If you can pay off the full amount at the end of every month, using your card will cost you nothing at all. The competition in the card market is so intense that virtually no-one charges a monthly fee these days.
If you use your card for larger purchases with the specific intent of spreading the cost pay off as much as you can possibly afford each month and aim to get each installment cleared quickly. The estimated interest quoted on the statement is based on a minimum payment received just before the due date (usually 3 weeks after the statement date). You can reduce that interest by paying more than the minimum, and by paying before the due date.
2. BE INTEREST-SAVVY
If you have debts on more than one card, work out which is costing the most in interest. Try to pay more than the minimum of each card, each month, but make your biggest contribution to the one that’s costing you most.
3. CARD SHUFFLE
The best advice for those unable to control their spending is to have no cards or only one. If you’re a confident player however, you can drastically reduce your interest-payable by having several cards, which enables you to access lower or even zero interest rates by taking advance of the “Balance Transfer” hook.
Card companies entice new customers by offering these rates, usually for a specified period. Your existing card companies will often make similar offers if you’ve cleared a card & not used it for a while.
Rule one of the transfer hook: This is business. These guys are not out to do you a favour. READ THE SMALL PRINT! Some offers aren’t as good as they look:
* 0% for six months might be offset by higher than average rates at the end of that period (only good if you can & do pay off within the six months)
* 0% interest for the life of the transfer might carry an admin fee which exceeds what you’ll pay in interest if you leave it where it is (do the math)
* the nil/low rate on transfers might be off-set by a higher rate on purchases (can be useful if you can use a different card for new purchases while paying off this one, especially if the other card can be cleared every month)
Balance transfers can be particularly useful for one-off purchases that you know can’t be cleared in one month but can be within six. A major trip for instance. Pay on one card, then transfer to another, and don’t use that card for anything else until the debt is paid.
The risk: Don’t transfer too frequently. If you do, you could get a “credit-surfer” notation on your credit rating, which might put some lenders off.
4. EXPENSE ACCOUNTS
If you regularly claim work-related expenses always have a separate card for these. This is one that you should clear every month. Try to set it up so that the month’s claim will be paid before the card account falls due. As the claim offsets the payment, there should be no impact on your personal accounts.
5. BE SENSIBLE
It still makes sense to pay in cash whenever you can. If you have cash in hand, any loss of interest from the savings account will be less than the interest outgoing on borrowing. Only use cards when you need to, don’t over-extend, and pay off as quickly as possible.