03-Dec-2015 • Corporate

Industry super fund-owned bank ME is warning Aussies to be wary of zero per cent balance-transfer deals typically offered by credit card providers in the New Year targeting debt-laden seasonal spenders.

In advance of the promotional period, the Bank said it would support a ban on zero per cent balance-transfers, citing research that shows the offers prolong unsustainable debt behaviour.

According to a ME survey with 2,216 credit card holders, around 40% take up cards specifically for balance-transfer offers, allowing them to put old debts onto a new card at zero interest for a set time, often up to 18 months.

ME said while balance transfers are effective at attracting customers, the reality is about a third of those who take up the offers don’t pay off the debt brought over within the grace period.

According to ME’s findings, 29% of all balance transfers are not cleared before the interest-free period ends.

“That’s why we won’t offer zero per cent balance-transfers − they allow debt-laden consumers to put off changing the behaviours that created unsustainable levels of debt in the first place,” said ME Head of Deposits and Transactional Banking, Nic Emery.

“With no interest to pay for 18 months and no requirements to cancel their existing cards, many cardholders may feel like they’ve got their debts under control.

“But for a third, the offer simply puts off the debt crisis and even worse, it can encourage further spending that exacerbates their debt crisis.”

“We know that a large number aren’t learning to change their spending habits because over half (53%) of those who accept zero per cent balance-transfers continue to revolve their debts on a regular basis, compared to 37% overall.”

Other hitches behind the switches

Borrowers taking out balance transfers may also fail to understand that their cards have two interest rates – an ‘introductory rate’ and a ‘purchase rate’.

The ‘introductory rate’ is zero, and available for a finite period and only applies to debt you transfer over.

Conversely, the ‘purchase rate’ is higher, sometimes up to 21 per cent, and as the name suggests applies to all new purchases made on the card.

“What’s concerning is 70% end up purchasing on balance transfer cards,” added Emery.

“A lack of understanding of how the interest rates apply can lead to further debt problems.

“The best advice for people with balance transfer cards is not to touch them for new purchases and to focus on paying down the outstanding debt before the balance transfer period expires.”

How to step off the credit card roundabout

Emery outlined three key steps to gain control of credit card debt this Christmas:

1. Consolidate all high-fee debts with a lower cost, structured personal loan.
2. Learn how to use your credit card, which means treating it like a cash management tool you pay off each month and not using it to buy large expensive items you can’t pay off within the interest-free period. 
3. Get a low-rate no-fee credit card with at least 55 days interest-free.

ME offers a low-cost credit card, frank that boasts no annual fees± and a low variable interest rate for both purchases and cash advances* at 9.99% p.a.^ (transaction fees may apply) − compared to the industry median interest rate of 19% p.a.

For more advice on playing your cards right, call ME on 13 15 63 or visit mebank.com.au.

Things you should know

^Interest rate is current at 3 December 2015 and subject to change. *Cash advance fee of $4 or 2% of the amount of the cash advance (whichever is greater) and other transaction fees may apply. ±Conditions, fees and charges apply and are subject to change. Applications are subject to credit approval. MasterCard and the MasterCard brand mark are registered trademarks of MasterCard International Incorporated.


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