Credit Card Debt – It’s that awful sick feeling in the pit of your stomach, that nagging feeling you’ve forgotten something, niggling at you every day. We don’t like to admit it, but Australians owe a staggering $50 billion in credit card debt and most of us haven’t any kind of plan when it comes to how we’ll get out of it.
A recent study by CreditCardFinder.com.au found that 79.6% of Australians lie about their credit card debt to their families and just 8% are willing to cut up their card and go cold turkey in an attempt to be free from debt. 83.9% of Australians even said that they believed that spending money on their credit card didn’t count or wasn’t real. Australia, I think we’ve got a problem.
So, your secretly harbouring a debt bigger than your shoe collection, what now? It took so little time to accrue the debt – a dinner here, a sale there – and now it seems it’s going to take a lifetime to get out of it. Never fear, we’ve rounded up 3 golden rules to get you going. Grab a notebook and a pen, it’s time to defeat that debt.
By Michelle Balogh, Money Maven
1. Don’t live in the dark – Check your statements. Every month. If you’re an online banker, you can check any time you like. It might be less scary to use your bills as scrap paper, but you’re never going to get out of debt if you don’t know where your money is going.
In era of online transfers and direct debit it’s easy for money to be coming out of your account without your even knowing it. Do you have an automatic transfer going out to a gym, club membership or service that you’re no longer using? Are you paying withdrawal or transfer fees that could be reduced? Or, in more sinister cases, is somebody other than you withdrawing money from your account? (criminals often test the waters by buying inexpensive items first)
Open that envelope. Type in that password. Turn on the lights when it comes to your expenditure. Trimming those various unnecessary expenses will make you feel instantly better – that’s a guarantee.
2. Beware the minimum monthly payment – Paying only the bare minimum on your credit card bills is an easy trap to fall into, but it means repaying the most money in the longest possible timeframe. Repaying even just a little more than the minimum each month can make a big difference.
To put it in the most horrifying terms, if you have a balance of $5000 on your credit card with an interest rate of 18.5% p.a. and your minimum monthly payment is 2.5% of your outstanding balance, you would be paying back $127 every month.
Doesn’t sound too scary when you’re thinking short term, but in the long run you’d pay $10,772 over 12 years and 11 months. That’s over a decade to pay back your $5000, and a whopping $5772 in interest.
Feeling faint? What if you were to repay an extra $50 each month on top of your minimum repayment? You’d pay $6,481 over 3 years and 1 month. That $50 could mean paying off your debt 9 years and 10 months sooner and saving $4,921.
Once a month, choose to opt out of dinner and a movie and cuddle up at home with a DVD, think of the magic that $50 you’ve saved could do.
3. Be choosy about your cards – Just as that perfect dress falls flawlessly around your figure, the perfect credit card should conform to your own unique spending character. One credit card does not fit all. Changing from one card to another may not defeat the debt that you’ve already accrued, but it may prevent you from piling on more.
Rewards cards are fantastic because they allow users to collect flyer points or vouchers for paying bills in full and on time. But if you only ever manage that minimum repayment then having a rewards card may mean wasting money on fees. Choose a low-rate card with no-extras to ensure that you’re paying as little interest as possible on your debt.
