How to pay off your renovation debt

cladding cost

It’s no secret that renovating a home takes a lot of hard work, and even more financial support. While there are easier ways to pay for your renovation costs than using your credit card, you can substantially boost your rewards points by doing so.

However, your final bill may be a little overwhelming. After painstaking weeks of work, you can easily accumulate a fair bit of credit card debt on top of the renovation of your dreams.

Luckily, there is a way you can get some much-needed breathing room to pay off your renovation debt and avoid pesky high interest rates.

Utilise balance transfer credit cards

If you’re struggling with credit card debt and need more time to pay it off, credit card balance transfers are one way to find solid ground in an otherwise shaky situation.

A balance transfer allows you to move your existing credit card debt on to a new card. If you do your research and are diligent in paying back your debt, you won’t accrue any additional interest. Balance transfer cards traditionally offer zero per cent interest rate options available anywhere from three months to two years.

Comparison website RateCity found that credit card holders who transfer their balance to a new card could save an average of $1,262 in interest and fees, and pay their debt off 6 months earlier*.

However, it is important that you understand if you do not pay back your debt in this balance transfer period, you will often be hit with a higher than average ongoing interest rate. Balance transfer cards are a highly competitive option for someone who is strict about paying off their debt – they just need some extra time to do so.

Example: Ian and Alex have recently renovated their kitchen and they put a chunk of the bill on their credit card to boost their rewards points.

They now have a $7,000 balance and ordinarily pay 22 per cent interest. If they make $300 monthly repayments it will take them 2.6 years to pay off the entire debt and they’d have to pay $8,997 overall. If they just pay off the minimum amount only it will cost them $23,607 and take 31.4 years.

If they transferred this $7,000 debt to a card with an 18-month balance transfer period, it will give them some much needed breathing room to pay off the debt without paying extra interest.

Things to consider:

Some credit card provides do charge a balance transfer fee anywhere between one to three per cent on top of your transferred amount. This is something you should be cautious of. Ensure you use credit card comparison tools to compare cards, as there are plenty of no fee options out there. Credit card providers can also charge you an annual fee, however many will waive this fee for the first six months to a year for new customers, so keep an eye out for these more competitive options.

Balance transfer cards are a valuable resource to give yourself additional time to pay off a debt. However, if you are the type of person who has trouble paying your bills on time this may not be a safe option. If you can’t pay off your balance in the balance transfer period you can be hit with a higher than average interest rate.

Specials and deals with balance transfer cards

Credit card providers will often provide generous offers to entice new customers. These specials and deals can be in the form of bonus rewards points, cash back and more.

The following credit cards offer competitive balance transfer introductory rates as well as lengthy balance transfer periods before you’ll start accruing interest. They also currently have competitive specials and deals.

  1. Virgin Money VirginAust Velocity Flyer Card
BALANCE TRANSFER RATE BALANCE TRANSFER PERIOD INTEREST RATE BALANCE TRANSFER FEE ANNUAL FEE
0% 18 months 20.74% 0% $129

Not only will you not be charged a balance transfer fee, but the Virgin Money VirginAust Velocity Flyer Card currently offers the following:

  • Earn three bonus Velocity Points on top of your standard earn rates for each eligible $1 spent in your first 3 months (capped at 10,000 bonus points per month)
  • The annual fee will be waived if you spend $1,000 per month for the first 6 months on card approval (reverts to $129 thereafter)
  1. Suncorp Clear Options Platinum Card 
BALANCE TRANSFER RATE BALANCE TRANSFER PERIOD INTEREST RATE BALANCE TRANSFER FEE ANNUAL FEE
0% 18 months  20.74% 0% $129

Card holders can enjoy triple rewards points on eligible transactions made in the first 6 months. The Suncorp Clear Options Platinum Card also does not charge you a balance transfer fee.

  1. Coles Rewards Platinum Mastercard
BALANCE TRANSFER RATE BALANCE TRANSFER PERIOD INTEREST RATE BALANCE TRANSFER FEE ANNUAL FEE
0% 6 months  19.99% 0% $99

If you prefer your specials to have real world benefits, Coles Rewards Platinum Mastercard holders can enjoy $100 off a single Coles supermarket shop if you make a purchase within the first 30 days and are approved by 31 December 2017.

If you’re looking for a smaller zero balance transfer period, the Coles Rewards Platinum Mastercard offers cardholders a six months’ period with zero per cent balance transfer fee. After the balance transfer period is over, you can also enjoy a higher than average number of fee free days (up to 62).

*Figure: average debt figure of $4,225 based on the total outstanding balance accruing interest (source: Reserve Bank of Australia) divided by the number of card holders (Source: Roy Morgan Research). We have made the following assumptions: the $200 is repaid on time, every month, no new purchases are made, interest rates don’t change on your existing card, and the cardholder meets the lending criteria and is approved for the deal.