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The credit card love affair: dump it and save $400
RateCity looks into Australia's love affair with credit cards and shows you how to pay off your debt sooner and save more in interest.
July 7, 2010
Some may say our relationship with credit cards is one of those poisonous relationships that you just can't let go of. Despite high interest rates and tough economic times, Australia's addiction for credit cards is more evident than ever.
In May this year Australian households collectively owed banks a total of $38.3 billion in credit card debt, according to Australia Prudential Regulation Authority data.
In one month alone, our debt increased by $139 million from $38.2 billion from April. Since January this debt has increased by $915 million from $37.4 billion. When comparing to 12 months prior, the amount of debt has increased by $3.3 billion from just under $35 billion in May 2009.
The reality is that this debt is not going to disappear on its own and you will have to pay it off eventually. What a lot of people may not realise is that the longer you leave the debt the more you will pay in interest and the harder it will be to pay off.
How to pay your credit card off sooner and save
Don't despair, however, as there may be some answers to help you find financial freedom and possibly save money at the same time:
- Pay more than the minimum repayment. Research shows that the amount that financial institutions charge for minimum repayments is approximately 2 percent of the total balance owing, and could take you years to pay off and cost several times more than your original balance. For example, if you have a credit card debt of $7000 at an interest rate of 17.99 percent per annum, it will take you more than 50 years to pay back your debt if you repay the 2 percent minimum. However, if you could pay $300 off the balance each month you, it will take you less than two and a half years to pay off.
- Consider a balance transfer. If you are struggling to pay off your current balance or want to be credit free sooner, consider applying for a balance transfer credit card. Most cards offer a very low interest rate or even no interest for a specified time frame.
For example, by transferring your balance of $10,000 at 17.99 percent to a zero percent balance rate such as ANZ's Low Rate MasterCard, you can save about $400 in interest in six months.
Compare online to find a low rate balance transfer credit card to suit you and start saving today.
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