We’ve all been there, opening a credit card bill and letting out a shriek of horror at the debt we’ve mysteriously accrued whilst going about our day to day business. The average Australian’s personal credit card balance is $6412, a daunting figure that many of us have no idea how to escape from.
Seventy percent of households had at least one credit card in 2009-10, and the average credit card debt among these households was $2,800. Clearly, credit card debt is something that Australians know how to get in to, the trouble is getting out. We spoke to Jeremy Cabral of CreditCardFinder.com.au about the best ways to avoid pulling that nightmare bill from the mailbox.
‘By paying your bill late and not in full you will attract late payment charges and will not benefit from interest free days on purchases,’ said Mr Cabral. ‘By only making the minimum repayments on a $10,000 debt, it can take over 47 years to repay.’ The key trick to becoming master of your card is to spend within your means – stick to a budget and know what you can afford.
Mr Cabral told us 5 top mistakes made by credit card holders and tips to kick debt to the curb:
- Paying bills late. If you pay your credit card bill late, and don’t pay it in full, you will attract late payment charges and will not benefit from interest free days on purchases. This will also become even more important once we move to a positive credit reporting system here in Australia. Always pay your credit card on time and in full to avoid additional interest and late payment charges.
- Making only the minimum payment. If you carry a balance, always repay more than the minimum repayment amount. An extra $50 a month can go a long way in reducing your interest charges and repayment period.
- Failing to compare cards on the market. Compare rates and fees regularly and always choose the right credit card for your spending and repayment behavior.
If you carry a balance month to month and have a rewards credit card, you should consider switching with a balance transfer to a low interest card that reverts to a low purchase rate. It’s important to repay the balance in full before the intro period ends.
If you spend a lot on your credit card and always repay it in full and on-time and don’t have a rewards program attached to your card, consider switching to a frequent flyer card or another rewards program credit card.
If you only use your card in emergencies, consider a no annual fee credit card.
If you plan to make large purchases on your card, consider a card with a special introductory rate on purchases that reverts to a low interest rate. It’s important to repay the balance in full before the period ends.
- Spending without a budget in mind. Spend only what you can afford to repay within the interest free days period – a lot of cards commonly have a 55 interest free days feature. It’s also important to have a budget to plan how much you can afford to spend.
- Withdrawing cash at ATMs. Avoid using ATMs to withdraw funds as they attract very high cash advance charges and interest is charged immediately from the day you withdraw funds. Plan your spending appropriately to avoid ever having to use your card for a cash advance.
