The banks are rolling out a range of interest-free credit card deals in the lead-up to Christmas. But are they worth it, or will they leave you with you a financial hangover in the new year?
No-interest purchase cards are just like regular credit cards – but with a twist.
Instead of getting the 45 or 55 days interest free, they offer up to 15 months with no interest. If you shop today you don’t pay any interest until February 2020, which is a great deal … until you have to pay it back.
These cards could be good for things like an upcoming holiday, or to cover you while you’re on maternity leave. But with Christmas just a couple of months away, lenders are banking on people putting their Christmas shopping on the cards, assuming that some won’t pay it back in time.
If you do take out one of these cards, don’t let that be you. Be 100% sure of what you’re signing up to and have a foolproof plan to pay it back before the end of the interest-free period.
Coles credit cards – including its no annual fee offering – currently offer the longest interest-free purchase periods.
Just be aware that this card reverts to a relatively high rate of 19.99% when the honeymoon is over so you need to make sure you’ve cleared the debt in time.
An alternative could be the Coles Low Rate Mastercard, which reverts to 12.99% and has a relatively low annual fee of $58.
St.George, BankSA and Bank of Melbourne are giving 14 months interest-free on the Amplify Classic card charging an annual fee of $79 and reverting to 19.49%, which is a reasonable deal provided you clear your debt.
When shopping for one of these cards, the first thing to do is look for one with a decent interest-free period, which gives you enough time to pay back your purchases. Find one with a low annual fee and, most importantly, diarise that end date.
To make these cards work for you, you need to have a plan where you pay off large chunks of the credit card every month so at the end of that period you are completely debt free.
Most credit card companies rely on you not paying it off but just meeting the minimum repayment, usually set at just 2% or 3%.
If you are going to take out a new credit card in time for Christmas, make sure you get rid of the old one because there’s no point having two of them – that means double the annual fees and double the debt and you can get yourself into real strife.
Finally, if you have a debt left over from Christmas, an interest-free balance transfer card can give you some financial breathing space.
The longest interest-free balance transfer deal is 26 months with St.George, BankSA and Bank of Melbourne. Citi, NAB and Westpac all offer 24 months interest free.
If you’re crippled by credit card debt and you decide to go down this path, be aware of the fine print.
There is often a cost for transferring your balance and you’ll typically lose your interest-free days. So take the scissors to the card or put it in the freezer – maybe with any other cards while you’re at it.