Credit card debt is a huge problem in Australia with the
nation racking up a debt to the tune of $50 billion.
While Aussies have slowed their credit card usage, we aren’t
out of the woods yet.
In the past 30 years, the national credit card debt has increased
year on year, sometimes by up to 28%.
New research from the Reserve Bank shows the total credit
card debt has been between $48 and $50 billion for the past two years.
These figures suggest people are only making minimum
repayments on their credit card, rather than making an effort to pay down their
debt.
“It’s great for Aussies to have moved away from relying so
heavily on their credit cards, but the remaining debt can still cause a lot of
problems,” Debt Rescue operations manager Rachael Witton said.
According to Ms Witton, sticking to the minimum repayment
amounts set by banks could cost you thousands of dollars over a number of
years.
“By making the minimum repayment (which is 2% on average) on
a $2,500 debt, it will take about 20 years and three months to pay off,” she
said.
“The total interest you would pay in that time is roughly
$4391 (based on the average purchase rate of 17.21%) which could be better
spent on the family home, a holiday, a car or a rainy day fund.”
Credit Card holders are encouraged to get a handle on their
debt by prioritising their repayments.
“Credit card debt is easy to lose control of because the
money is always available to you,” Ms Witton said.
“By sitting on the debt for so long, it’s easy to become
complacent.”
Debt Rescue helps people take control of their debt every
day and Ms Witton said the debt cycle can easily be broken with a few small
changes in your spending behavior.
Start Budgeting
How do you know what you can afford without knowing how much
your have to spend? Taking an inventory of your income and your expenses in a budget will
help you understand where your money is going and the places you can cut back
on.
For example, if you are buying your lunch at work every day
you could be spending over $75 each week. Packing left overs and planned
lunches at home could save you hundreds of dollars each month.
Consider Balance Transfer Offers
There is a lot of competition for consumers in the credit
card market at the moment. One way to steal consumers from the opposition is
for banks to offer great deals on balance transfers.
Shop around for a balance transfer deal. The
best ones out at the moment offer you an interest free period of 6 months. During
this time you should knuckle down and pay off as much of your debt as possible.
Then once the interest free period ends your debt should be manageable. Be wary
of transfer fees, but these are usually a lot less than the interest you would
be paying over the 6 month period.
Stop using your credit cards
Paying off a debt is hard enough without it continuously
growing. The only way you can plan to pay down and keep on track is to stop
using your card.
Your budget will help you plan for your bills so you can
ensure you have enough money to cover your big ticket bills, then any money
left over can be used as you see fit. If you can’t afford it straight away,
save up or ask if you can put it on lay-by.
Renegotiate Terms
With so much competition for consumers, a simple phone call
might be all it takes to lower the interest rate on your credit card. Enquire
with your bank if they would consider giving you a better offer.
Have a look
around at the offers available through other credit card providers and ask them
to match or beat a competitor’s deal.
Consider a debt relief plan
Debt can be tough to tackle on your own, fortunately there
are experts out there who specialise in cutting down debt. If you want to get
fit, you would visit a personal trainer, if you want to get out of debt, talk
to an expert.
There are a number of debt relief options available to people at
different stages of debt. From debt consolidation and informal debt agreements
to formal debt agreements and bankruptcy, there is a positive solution
available for you.
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