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AU Five ways to avoid blowing your home deposit with credit cards: RateCity

Property Here - Thursday, December 26, 2013

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There are currently more than 15.5 million credit cards in circulation, with an average $22 billion spent on credit purchases every month in 2013, however over the holidays you need to keep a close eye on your spending, according to RateCity.

The end of January will be here before you know it, and the last thing you want is to blow 11 months of doing the right thing with your credit card in just a month, warned CEO of RateCity, Alex Parsons.

“The only way to limit the damage from credit cards is to proactively put plans in place that will minimise the cost of overspending and paying unnecessary fees,” said Parsons.

He noted that there are five common traps that can be easily avoided.

1) Be aware that shopping with a card feels different to shopping with cash

When the statement finally arrives, you’ll then realise how much you have spent – when you use the cash it’s a physical reminder, however the card can put it out of your mind.

“Where possible, use cash or a debit card. This will help you control your spending,” he said.

2) Know that minimum repayments can be costly

Parsons points to data they have collected showing that most credit cards have a minimum repayment of just 2% of the outstanding balance.

When looking at a $5,000 debt, paying the average rate of 17%, it could take 30 years to clear the debt.

“By paying the minimum, you don’t cover your interest payments and end up paying more interest overall as it takes you longer to pay off your debt. Ideally, you should pay the balance in full each month. If that’s not possible, pay as much as you can afford,” he said.

3) Cash advance features can also cost you

Cash advance features of a credit card can affect you in unexpected ways. Interest-free periods do not apply to cash advances, for instance, with often exorbitant interest being charged on these. This can be as high as 29.49%.

“But that’s not the only trap associated with cash advances. In many cases, you’ll be hit with interest as soon as you withdraw the cash as well as possibly having to pay a withdrawal fee. This fee may be a percentage of the amount you withdraw or a flat fee,” said Parsons.

4) Introductory and balance transfer deals can revert to high rates

The terms on your introductory and balance transfer credit card deals can note that you revert back to rates of almost 20% on balance transfer cards.

“There’s around a dozen 0% intro-rate credit card deals advertised at the moment, and more than 50 balance-transfer deals offering interest-free for up to 12 months, which can seem like a great way to shed the Christmas credit hangover,” he said.

“But many of these deals wouldn’t exist if the banks weren’t sure that many people will end up paying interest on the revert rates. So only use these if you’ve got the discipline to pay it off in full during the intro period and not rack up more debt."

5) Ensure you are aware of excess fees

Annual fees and interest charges are not the only costs you may be slugged with, as the way you use your card can also see you racking up more debt.

For instance, fees such as exceeding your credit limit, late payment of monthly statements, replacements for cards, using ATMs outside of your network and similar can also cause extra costs.

Spend wisely when out shopping these holidays!