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Dodging the credit card snowball: How to get out of debt


Laine Gordon

By Laine Gordon

3 min read

Don’t let the holiday season blow your credit card debt out of control. Jack Han investigates how to beat the tide.

January 4, 2010

Credit card balances and limits are continuing to rise higher than ever, according to data from the Reserve Bank of Australia (RBA). For spenders, this means that a mountain of debt could be waiting for them in the New Year, as debt trends spiral out of control.

RBA statistics for October 2009 compared to September show that credit card limits have risen by about $473 million across Australian accounts, to a combined $126.1 billion – an all time high. Balances on credit cards have also reached a record of $45 billion, meaning that on average, Australians have a $3,141 credit card debt.

Repayments are also $170 million lower than October 2008, and this figure is expected to soar in December, as shoppers pay off their debt before interest begins to be charged.

However, the figures also show that the total value of credit and debit card transactions declined by 0.3 percent, from $19.246 billion in September 2009 to $19.189 billion in October. Even though Australian shoppers are not effectively reducing their debts, there are still concerns about the consequences of excessive spending.

So how can you swim against the rising credit tides, and keep yourself afloat at the same time?

One sure way is to resist offers to bump up your credit limits in the holiday season. This is a great time for financial institutions to tempt customers into more debt; so many spenders can expect to see a few in the mail.

Another way of keeping yourself from being dragged under is to reduce your interest rate. This can be done by comparing online for balance transfer deals that offer a small or zero percent rate for an introductory period on your credit card debt. For example, by transferring a debt of $5,000 from 12 percent interest to an introductory rate of 2.99 percent, you could save about $225 in interest repayments over the first six months.

And if you really want to put a stop to debt, consider replacing your credit card with a charge card, so that you will not be tempted to spend while you are paying off what you owe. Debit cards are a great way for consumers to curb spending during the financial crisis, and there is no reason why the healthy financial habits need to stop in the New Year.

If you are ready to cut away your debt and divide yourself from the big spending crowd, you can start by thinking about the maximum amount you can repay every week, and compare for a low rate credit card today. This is one time where breaking apart from the herd can really save your family thousands.

 

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