November 3, 2010
New research shows that Australian households are in the midst of a battle to stay on top of their credit card debts.
According to the ING Direct Financial Wellbeing Index, the average credit card debt for Australian families has increased by 24 percent in the last quarter, from $1673 in the second quarter to $2072.
They are also finding it tougher now to pay off their debts, with around 14 percent of households feeling "very uncomfortable" about their credit card debt.
More reliant on credit cards
The index shows that as the cost of living increases, more Australians are relying on their credit cards rather than using their savings to meet everyday living expenses.
Any spare cash available is being used towards paying down their mortgages, especially while interest rates remain stable, rather than to pay off their short-term credit card debt.
ING Direct CEO Don Koch says, "Home loans are underpinned by an asset that will rise in value over time - something that cannot be said of credit card debt. Moreover, the higher interest rate applicable to credit cards will see many families burdened by growing interest charges. This is detrimental to short-term financial wellbeing, but in the long run it can create a devastating debt spiral."
Win the credit card war
However the good news is that with some planning and dedication you can change your credit habits and reduce your credit card debt, just by following some of these handy tips:
Focus. If you are paying off a mortgage, it is more than likely that the interest rate on your credit card is higher than your mortgage. Instead of making extra repayments on your mortgage, focus on your credit card first. You will not only save in interest but once you pay it off you can focus on getting ahead on your mortgage.
Consolidate. If you have more than one credit card, consider consolidating them into the one card with a balance-transfer credit card. Offering a lower rate, usually around 0 percent for six months, you can focus on paying off your debt without the high interest rates.
Pay off the balance. If you must use your credit card to make purchases, ensure that you pay off the balance in full each month to avoid being hit with interest.
It is possible to win the battle with your credit card and pay off your debts sooner.