01 Feb 2006, 04:13:58 PM

Reporter Adene Cassidy

Credit card debt is at an all time record high in Australia ... In December consumers racked up a staggering $16.1 billion on their credit cards...

Nicole Pedersen McKinnon says "it is serious the amount of personal debt we're in, the thing to remember as well is that credit cards are the most expensive form of debt so you have people paying sort of 17, 18, 19% on this debt ..."

So the big banks must be rubbing their hands with glee. Knowing consumers are paying premium interest on their debt. But it's a competitive market and many of smaller lenders are cashing in so to speak. By offering low and even zero percent interest rate credit cards.

With five credit cards running and four children to support it didn't take long before Shirley Robotham accumulated a debt of almost $30 000, a debt she simply couldn't repay. Shirley says ""it was really hard because you put so much in then you get the next bill and you would be so disappointed because most of what you paid, you might pay say $400 and you come back but only $150 has come off the actual bill"

Paying interest rates of up to 25% on some of the cards, Shirley realised it would be years before she could pay the debt down. So she transferred some of it to an interest free card, giving her six months to pay down the principle. Doing this twice gave her 12 months; interest free to pay off the massive debt.

Shirley says "by the time the interest free period is up I will have everything paid including the wizard so for the first time in 10 years I will be credit card free, debt free."

Nicole says that "0% balance transfer cards allow you to take your understanding debt, the debt you have on your credit card, swap it to a new card and pay nothing on that debt for a period of between 4 to 6 months."

Editor of smart investor magazine and author Nicole Pedersen McKinnon believes interest free credit cards are a smart way to pay down debt ... But only if you're disciplined ... Because she warns there are hidden catches. She says "nothing is for free so although 0% sounds attractive there are of course ways in there that the banks make money out of you for example the actual rates from the card once the zero percent period is over can be quite high, also if you make new spending on the card the rate you will pay will be very high it will be from day one."

24 year old financial planner Michael coupe used his credit card to see the world ... Accumulating a debt of around $2 500 - the average personal debt for most aussies ... But making the minimum repayments was getting him nowhere. Michael says "I had the debt for about 12 months and it didn't really go anywhere it was paying a little bit off and then interest and then I would put something else on it and it stayed where it was and got a little bit bigger over 12 months and I thought I've got to stop this and so I changed I got the zero percent card."

A dramatic drop from the 17.9% he was paying on the debt ... For the same four month interest free period Michael would have paid $447.50 ... In interest alone ... And even if he hadn't met the four month deadline the interest rate that kicked in was still lower at 12.99%

Nicole says "so when you transfer your balance basically stick that card in the bottom draw pretend you don't even have it, treat it as though it's an interest free loan (butt) do not make any new purchases on that card because that is what's going to cost you and that's how the banks make their money out of these card."

Following overseas trends there are now 10 cards on the aussie market, among the most popular are:

Wizard offer zero percent interest for six months on transferred balances, no annual fee, and no fee for atm withdrawals or cash advances ... The interest rate on new purchases and cash is 12.4%.

Hsbc also offer six months interest free, and while there's no annual fee for 12 months after that it kicks in at $39 a year ... Their interest rate is a low 10.49% on new purchases and it grants you 55 days interest free.

Bankwest only offer 4 months at zero percent but have no annual fee and the interest rate once it kicks in is 12.99%

Nicole says "figure out what your debt is, figure out how long you've got how many pays until the zero percent transfer period ends and figure out exactly how much you have to put aside each pay to get rid of it within the period."

Shirley says "I actually was so excited and we actually cut it up and had a little party with the kids and we were all so happy because once you do one you know you can do it."