December 2, 2010
As Australia's level of credit card debt gets out of control, the federal Treasury has released a green paper to help protect consumers from overspending on credit cards.
The green paper refers to Reserve Bank of Australia (RBA) data that shows Australians accumulated a total credit card debt worth $4.8 billion as at September, an increase of $143 million from August.
In July this year the Treasury released a National Credit Reform Green Paper with the aim to enhance confidence and fairness in Australia's credit law. The paper states that further regulatory action is required to reduce the levels of consumer debt but also increase competition with rates and fees.
It proposes a number of key measures to better protect consumers from excessive credit card debt, including:
- Unsolicited credit limit extension offers are not allowed unless the consumer has agreed to the service.
- Changes to the Privacy Act so that "positive" information in addition to "negative" information can be accessed on an individual's credit file, such as the repayment history for the previous two years.
- Protecting consumers from being approved for credit levels which they cannot repay.
- Warning consumers about the effects of only paying the minimum repayments.
- Increasing the minimum repayment percentage for new credit cards and those with increased limits.
The green paper states that the majority of regulations should be implemented by mid-2012.
Get your credit card debt under control
While the government is doing its bit to help, there are measures that you can implement to reduce your debt levels.
Pay off the balance. If you can afford to, pay off the balance in full each month to avoid having to pay interest.
Pay more than the minimum. If you can't afford to pay off the balance each month, make sure you pay more than the minimum repayment as this is usually calculated at around 2 percent of your total balance. It could take you years to pay off.
Balance transfer. Consider moving your credit card debt to a balance transfer card offering a low- or no-interest rate for a certain amount of time (for instance, 0 percent for six months). That way you can focus on paying down your debt without paying any interest. Look at balance transfer cards online at RateCity to see how much you can save.
While the government explores improvements to the current laws for credit cards, remember it is up to you to ensure that your level of credit card debt is manageable and you focus on paying it off as soon as you can.