Australian's are currently experiencing a 10 year low in the amount of credit card debt we carry over month to month and accrue interest on. Now while that may sound good the number still sits at a whopping $31 Billion. To break that down we have around 16.7 million credit cards in circulation, with an average balance of $1,880. Calculate that with the average interest rate of 17%-19%, Australians are paying a staggering $5.5 Billion year or $458 Million a month, just on interest!
If you're one of the millions of Australian with credit card debt weighing you down, here's some strategies to help get your finances back on track.
Please note the following information is general in nature, and does not take your personal situation into account. If you would like strategies to suit your needs please contact us via our "contact us" page on our website or email me at firstname.lastname@example.org.
If you own a property and have some equity in the property, you could research the option of refinancing your debt into your mortgage. There can be costs involved depending on the lender so it's best to weigh up what you pay vs what you save.
If you don't own property or don't have enough equity for the first option, the second choice is to combine your credit card debt into a personal loan. As with all strategies your personal situation needs to be taken into account to see what would best suit your needs and weigh up the costs involved vs your savings.
One option that has grown rapidly over the last few years is the "0% interest balance transfer" credit card offers. They offer you 12-24 months interest free. But they can be a double edged sword. They can solve your problem or make it worse. Here's why:
You still have a credit card. But this new one will have an above average interest rate.
If you don't budget and just pay the minimum repayments you won't clear your balance transfer before the interest free period ends and be in a worse position paying higher interest.
On average you can only balance transfer 80% of your new limit. So you may need to increase your limit to do this, putting you at higher risk with larger liability.
A lot of these offers charge you a yearly fee for the card and somewhere between 1-3% for a balance transfer fee.
This doesn't mean they can't work, but setting a repayment schedule to avoid the inevitable interest is key to making this work. If you know you're not good at managing a credit card, it may be best to find a solution that clears your debt and cancels the card.
The most important thing to realise is when you're in trouble with credit card debt you need to be proactive. The longer you carry the debt the deeper in debt you become.
If you're in trouble ask for help. You can contact us and book an appointment with one of our financial planners or for some more free advice you can visit the ASIC moneysmart website here https://www.moneysmart.gov.au/
If you would like to learn if one of these option could help you, please feel free to email me at email@example.com or call on (03) 9017 5300