It is easy to slip into a credit card trap by only paying off the minimum monthly payment.  If you only pay off the minimum payment required each month (assumed to be the lesser of 2.5% of the balance or $20), it will take you over 15 years to fully repay an outstanding credit card balance of $3,000 assuming an interest rate of 17.99%, no additional purchases are made on the card, and all minimum payments are made by the due date – that is, no late payments.

The only way to bring your credit card under control is to pay off more than the minimum payment each month.  Using the above example, if you paid $50 a month more than the minimum payment, the $3,000 debt would be repaid in 44 months or in two years if the additional monthly payment was increased to $100.

This example shows the difficulty in getting out of credit card debt.  It highlights the need to have a budget and only use your credit card for larger, unavoidable expenses which you know you can repay over (say) three months.  Use the card for everyday living without religiously paying off the statement balance each month and you are asking for trouble.

To escape the credit card trap, apart from careful budgeting and rigorous self-control on new spending, you need to reduce the interest cost of the hard-core balance owing.  The best way to do this in the short term is to take advantage of one of the Balance Transfers which are now offered by most Australian credit card issuers.

Banks, financiers and specialist credit card issuers use Balance Transfers as a key marketing tool to get cardholders to submit a credit card application to switch to them.  The bait can be a low or even a zero interest rate for a ‘honeymoon’ period.  Most offers are either zero percent or 4.9% per annum on the balance transferred for a period of four or six months although some offer the discounted rate ‘for life’.

The transferred balance is initially kept separate from your normal purchase transactions and you will be required to make minimum monthly payments on that balance – which is combined with any other payments required on the card.

If any balance still remains owing on the balance transfer at the end of the honeymoon period, the interest rate is reset to the prevailing interest rate on outstanding purchases – but can go even to their cash advance rate.  They call this the ‘revert’ rate.   You should carefully check the applicable revert rate and work out whether you will actually be better off after the balance transfer.

With Balance Transfers, the key is to put everything into paying off the balance off prior to the honeymoon expiry and not to make any new purchases on the card in the interim.

Competition can take the form of interest charged on carry-forward purchases and cash advances, waiving annual fees to new customers for 12 months, rewards programs and more recently, concessional interest rates on balances transferred from other credit card issuers.

Balance transfers involving ‘no’ and ‘low’ interest for a defined period are great attention grabbers as people see that they can make worthwhile savings by switching credit card companies.  And they’re correct!  Using a card balance of $3,000 for example, the saving over six months could amount to several hundred dollars.

Most of the applicable interest rates on Balance Transfers lie in the range 2% to 3% per annum.  If you take up a ‘Zero’ Interest Balance Transfer the short-term savings are even greater.

You need to ensure that what you save on the change-over is not going to be lost elsewhere.  For example, what is the pattern of your credit card usage?  Since you have a balance to transfer, you haven’t been paying off all your card purchases at the end of each month.  Focus on the standard interest rate, annual fees and other charges like charges for late payment.

There ‘s a cluster of other credit card offering a special interest rate of around 3% per annum on Balance Transfers.  The cards include Citibank’s Clear, Silver, Gold and Platinum credit cards as well at its co-branded Citibank BP MasterCard. Also in this category are ANZ Qantas Frequent Flyer Visa and its Frequent Flyer Gold Visa; and HSBC’s ‘Low-Rate’ Credit card.  All the cards in this group (apart from Citibank Clear), have a 12 month Balance Transfer term – the Citibank Clear card only runs for 6 months.

There are a number of zero and very low interest rate Balance Transfers to choose from – any one of which will save you money in the short term.  Do your research with Credit Card Application and be prepared to change your credit card issuer whenever you find them slipping behind the market pricing