What credit card debt is costing you

What credit card debt is costing you

Credit card debt is mounting across the nation. Australians owe approximately $34 billion on their credit cards, according to the Australian Securities and Investments Commission (ASIC). For every cardholder, that’s about $4,400 debt.

National reliance on the plastic

“Almost one in three respondents [of a national survey] told us they find it difficult to get by on their current income, with one in five saying they have scraped through to payday by living off credit or borrowing from friends or family,” said Alan Kirkland, CHOICE Chief Executive. 

While credit cards have their uses, it appears that flashing the plastic is becoming all too tempting for many Australians. For those making only the minimum repayments, it’s obvious that credit card debt may be costing a lot more money than just the original purchase price.

Alarmingly, a massive proportion of these mounting costs are thanks to interest.

How much is your credit card sucking up?

Looking at the ASIC figures, this begs the question — just how much money are Australians throwing away thanks to mounting credit card debit?

While credit card comparisons can help individuals secure competitive interest rates or switch to cards with no fees, diligent payments are essential in order to beat the wrath of interest, which can snowball over time. 

For instance, a cardholder with the average $4,400 debt is going to take 22.5 years to pay off what they owe if making only the minimum repayments on a 15 percent interest rate. On top of this base figure, the debt would balloon to $10,462 in total.

However, if the same person paid $200 per month in repayments, they would pay of their debt in just over two years and save themselves $5,360 in interest.

Are there better ways to spend your money?

Instead of making minimum repayments, consider upping the ante in order to wipe debt faster. There’s a raft of ways you could better spend the interest you’ll save, too. 

According to Visa’s 2013 Global Travel Intentions Study, Australians are some of the biggest spenders. On average, individuals from Down Under spent $4,118 on their last trip — a figure that’s predicted to lift by nine percent by these individuals’ next holiday.

It’s probably a safe bet that Australians would rather venture to the United States, Europe, Southeast Asia or elsewhere in the world, rather than paying off thousands of dollars worth of interest on their credit card debt.

There are more practical considerations, too. Australia’s Child Care Rebate helps families with childcare costs — up to half of out-of-pocket costs, up to $7,500 annually, per child, according to the federal government’s My Child website.

However, that’s only the tip of the iceberg. Parents are paying a lot more themselves to put their children into care in order to work, either part-time or full-time. This is all the more incentive to slash credit card debt.

Instead of racking up hefty interest repayments, you could be enjoying evenings out, too. According to the ASIC, Australian households spend an average $32 per week dining out, which amounts to $1,664 a year. 

From holidays to childcare and everyday spending in between, there are plenty of things Australians would probably rather spend their hard-earned cash on! So be smart when it comes to your credit card repayments.

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Learn more about credit cards

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

Current Annual Fees

These are the current annual fees on your existing credit card.

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 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 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 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.

Current Interest Rate

This is the current interest rate on your existing 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.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

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.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

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.