0% balance transfers debunked

By Hamish at http://www.mozo.com.au/

As winter dies and the stress of losing weight for summer sets in, spare a thought for credit cards that have gorged for months and are entirely unfit for the christmas binge. Now’s the time to think about a balance transfer.

Since you’re a clever sort, you’ll be ogling those super-slim interest rates on Mozo’s credit card comparison page — and hey, who hasn’t snuck a glance at a lusty 0% balance transfer rate? But here’s the rub: that low interest rate could end up costing you money.

“Zounds,” you might reply, and return to your ogling, but bear with us. We’ve been having a bit of a play with our nifty credit card calculator, which spits out the actual cost of a credit card — in place of all this interest rate and balance transfer malarky. The cost is the total you’ll pay in interest and fees to kill off that debt, and as it happens, it’s the best way to judge a credit card.

So let’s peek beneath the balance transfer covers.

•Citibank’s Clear Card, for example, offers a 0% for 6 months on balance transfers — and a stupendous purchase rate of 11.99% for 12 months. However, if you don’t pay off the transfer within that time, the balance reverts to a corpulent 21.24%.

For a debt of $3000, with repayments of $200 monthly, you’re looking at a cost of $308 in fees and interest.

•Suncorp’s Clear Options Standard credit card, by contrast, offers 1.9% for 12 months, and then 17.99% on the outstanding balance transferred. Punch in the same numbers, and the cost of knocking off that same debt is only $135.

The difference is, well, clear.

•St George’s Vertigo credit card has a lousier balance transfer offer still, at 2.99% for 6 months. However, after 6 months any unpaid balance doesn’t revert to a sky-high cash rate, but to a quite lovely purchase rate of 12.49%.

So what does that all mean? The same debt, with the same repayments, will cost $252 to pay off with St George.

And if, ahem, your repayments drop to only $100 each month, while that debt blows out to $5000, here’s the cost of each balance transfer in fees and interest:

Citibank Clear Card: $4639
SunCorp Clear Options Standard: $2304

St George Vertigo: $1974

The conclusion? Pay of that balance ASAP! But if that isn’t feasible, don’t just grab the best headline rate: it could be twice as expensive.