What your shopping addiction is doing to your wallet

What your shopping addiction is doing to your wallet

We’ve all felt that rush and sense of achievement when we snag a fantastic retail bargain, but according to experts, around six per cent of the population have a compulsive shopping disorder, or oniomania, and it can have detrimental effects.

Financial problems may occur if you start to borrow more than you can afford to pay back. This can lead to growing financial anxiety and stress that impacts all aspects of your life, including your credit history.

According to Australia Counselling, one of the most detrimental consequences of compulsive shopping is financial strain.

“People can be carrying huge credit card debt and be struggling to cover the minimum payments… When people are regularly and compulsively shopping to meet psychological and social needs, comparable behavioural patterns and consequences to substance addictions can arise. The person will continue to shop and spend despite negative consequences such as financial strain, interpersonal stress and a sense of spiritual emptiness.”

If the debt collectors are at your door, it’s time to take control of your finances.

Repair your credit score 

One of the main concerns for overspending is how this can impact your credit score.

Your credit report can be obtained online at Veda Advantage’s website. A low score will limit your ability to obtain a home loan, credit card, personal loan and many other aspects of your financial life. Lenders review your credit report when deciding whether to approve you for a loan or credit, and approval or rejection will come down to whether you appear to be at risk of not paying back the money you’re borrowing.

If your overspending has grown into substantial unpaid debt, and you’re concerned about the damage you’ve done to your credit score, follow RateCity’s guide to repairing your credit score.

Multiple credit cards = multiple debts

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If you are currently paying off credit card debt, don’t fret, as you are not alone. The Australian Securities & Investments Commission (ASIC)’s credit card debt clock monitors and reports how much Australians owe on credit cards based on Reserve Bank of Australia statistics. The number owing (which is in the billions) can fluctuate depending on monthly trends.

When you start to use multiple credit cards to fund your shopping addiction, you will begin to grow multiple debts. It can be overwhelming to decide which debt to pay back first, so follow this guide:

1. Contact your credit provider

If you are having issues paying back debt, you should contact your credit provider immediately. Your credit provider is required under consumer credit law to consider hardship variations, such as flexible payment arrangements, to assist you in paying back your credit card debt.

Chased by debt collectors?

This requirement also applies to debt collectors, who will be able to assist you in creating a payment plan.

2. Choose the debt to pay first

If you’re able to budget an amount to pay your debt, ASIC recommends the following for choosing which debt to pay first:

Pay off the credit card with the highest interest rate first – In addition to making minimum payments on all cards, pay more on the card with the highest interest rate, so you pay off the total amount on that card first. Then work your way through your other cards.

Pay off the card with the smallest debt firstKeep making minimum payments on all cards, and pay more on the card with the smallest debt, so you pay off the total amount on that card first. Then work on paying off the next smallest debt, and so on.

3. Balance Transfer

Another option for helping to pay off multiple credit cards is to move your debts to a balance transfer credit card with a lower interest rate. This should alleviate some of the stress of paying back your debt, as they usually offer an interest free period that could range from 5 to 24 months. You’ll want to pay the balance before this period ends to ensure you don’t incur any additional fees or charges.

4. Seek financial help

If you are still struggling, it is recommended that you seek help from a financial counsellor. This is a free service offered to help people struggling to pay back debt by community organisations, community legal centres and government agencies.

If you believe you or a loved one may be experiencing oniomania (compulsive shopping disorder), or are experiencing any interpersonal stress, depression, anger or anxiety please contact a medical and/or mental health professional immediately.

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Learn more about credit cards

How to get rid of credit card debt

  1. Calculate your debt. Credit card calculators make it easy to determine the repayments required to chip away at your debt in the shortest timeframe possible for your budget.
  2. Repayment plans. Take some time to formulate a credit repayment plan. Consider increasing your income, scaling back your lifestyle or refinancing.
  3. Talk to your credit provider. If you’re still struggling with your debt, give your credit provider a call. You may be able to come to a new arrangement.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

Do you need a credit card to get a loan?

You do not need a credit card to get a loan, but you usually need to have a credit history. Without a credit history, a financial institution cannot assess your ‘credit worthiness’, or your capacity to pay off the loan.

If you don’t have a credit card, your credit history can reflect any record of paying off an asset. Without any credit credit history, you’re limited in the type of loans you can apply for. But you may be able to obtain a secured loan against an asset. For more information on improving your credit score, go here

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How do credit cards work?

Think of credit cards as a short-term loan where you use the bank’s money to buy something up front and then pay for it later. Unlike a debit card which uses your own money to pay, a credit card essentially borrows the bank’s money to fund the purchase. When you apply for a credit card, the bank assesses your income and assigns you a credit limit based on what you can afford to pay back. At the end of each billing cycle, which is usually monthly, the bank will send you a statement showing the minimum amount you have to pay back, including any interest payable on the balance.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

How do you pay off credit cards?

The best way to pay off a credit card bill is to set a realistic spending budget and stick to it. Each month, you’ll get a credit card statement detailing how much you owe and how long it will take to pay off the balance by making minimum repayments. If you only make the minimum repayments, it will take you years to pay off your outstanding balance and add extra costs in interest charges. To avoid any extra charges, you should pay the entire bill.