What are low-rate credit cards?

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A number of organisations are now offering low-rate and interest-free credit cards and with Australians owing around $30 billion on their cards, they are attracting much attention. If you have accumulated a large debt on your card you may be considering whether to transfer your balance to one of these types. However, make sure you fully understand what is being offered - some of them come with a sting.

A wide range of companies - including GE Money, ANZ, Virgin Money and BankWest - are offering low-rate or zero-interest credit cards.

Usually the zero interest rate is offered for the first six months and then it reverts back to a standard rate. Such cards may provide you with some debt relief for a short period of time but you need to ensure you understand all the conditions that are attached to them.

The same applies with low-rate cards. If the low rate is only offered for six months, ensure you know what rate you will be paying after this period is over. It may end up being more than you are paying with your current card.

If you are interested in transferring to a low-rate or interest-free card, or any credit card, the following may help:

• Find out what the revert rate is. This is the rate of interest charged when the low-rate or the interest-free period ends.
• Find out what the purchase rate is - this is the rate of interest charged for additional purchases.
• Understand how the repayments are calculated. In some cases the repayments are applied to the balance transfer first.
• Find out what the fees are. By the time you take these into account you may find you are not getting a better deal.
• Make more than the minimum repayments so you will eventually pay off your debt.
• After you transfer your credit card balance to a new low-rate card, cancel the old card so you aren't tempted to build up debt on it again.
• If you are in debt and are only transferring your balance onto another card to provide some short-term relief, you need to seriously look at changing your spending habits.