Debt is a word on everyone’s lips at the moment, and as it accumulates Australians look for ways to pay it down which won’t cost them thousands in interest or wasted money.
Total household debt reached $1.84 trillion by the end of last year, greater than at any other time in the last quarter century in real terms, according to the Australian Bureau of Statistics.
This figure averages out at $79,000 per Australian. That’s a lot of debt to have, but there are ways to drive this down and for customers to regain control.
A closer look at household debt
The growth of real household debt per person has slowed somewhat since the beginning of the global financial crisis, which is promising. Between mid-2001 and mid-2007, real household debt per person increased 10 percent annually, on average.
But between mid-2007 and the end of last year, annual growth was just 2 percent, showing a considerable slowdown. The ABS noted that tighter home loan lending standards may be a factor in this drop in debt growth, though that’s not to say there’s no room for improvement.
Reliance on credit cards, significant household costs (such as power bills and mortgage repayments) and unexpected costs can result in nasty debt, quickly. While there has been a slowdown in household debt growth, there is certainly room to drive down debt.
How are Australians dropping their debt?
According to the ABS, a number of factors are helping individuals shave off their debt obligations. For instance, a range of lending products — often offered in conjunction with home loans — are helping households protect against financial hiccups.
“Products such as home equity loans, redraw facilities and offset accounts are more popular now than in the 1990s. These types of loan products make it easier for households to build mortgage buffers, enhancing their ability to cope with income shocks,” the ABS explained.
Along with the ability to protect oneself from income shocks, there’s another way to actually ditch the debt altogether: transfer your credit card balance.
What’s the benefit of a credit card transfer?
Australians are in no way unfamiliar with credit card use. In the 12 months to February 2013, Australians pulled out the plastic for 117 million individual credit card transactions, according to findings from Roy Morgan Research.
This marks an increase from the 12 months to February 2009, where 107 million credit transactions were made.
The frequency of credit card use is not so much the issue — provided users ensure they keep up with their repayments. If they don’t, they’ll quickly get stung with interest, which can be high, depending on the card.
Many credit card providers are now offering excellent credit card transfer deals, enabling individuals who have racked up debt to make a fresh start. A transfer enables credit card users to consolidate their debt by shifting to a new credit card. Providers are offering cards with zero- or low-rate- interest periods for a specified duration, giving users an incentive to wipe their debt without incurring extra interest rate charges.
Virgin Money‘s Low Rate Credit Card offers a six-month zero percent interest rate for balance transfers. Suncorp Bank‘s Platinum Card offers a 14 month interest-free period for balance transfers, while St. George Bank’s Vertigo Platinum product also offers 14 months zero interest.
That said, it’s essential for individuals to pay close attention to what the regular interest rate will be once the introductory balance transfer rate period elapses!