Did you play a little fast and loose with your credit card over Christmas? You’re not alone. Thanks to our festive season financial splurging, many of us start the year with a financial hangover in the form of serious credit card debt.
Reserve Bank of Australia figures show people in Australia collectively owe $51.2 billion on their credit cards, or about $3062 per card, according to financial comparison site Canstar.
Some $31.6 billion of the total owed is accruing interest, and while that’s down from a peak of $37.1 billion in April 2012, as a nation we still owe an “incredible amount on plastic”, says RateCity’s money editor, Sally Tindall.
Not all our debt comes from Christmas spending of course, but it’s a big contributor. According to Canstar, Australians were expected to put a whopping $56 billion on credit cards over November and December 2017.
“That’s an average of $3342 per credit card account,” says Canstar’s group executive of financial services, Steve Mickenbecker. “If you pay the minimum amount each month, it would take you about 18 years to repay your Christmas 2017 credit card debt in full.”
Wipe away the debt
The best way to wipe out your credit card debt is to pay the full amount you owe every month, otherwise you are accruing interest. Of course in reality, that’s not always possible. But here are some strategies that might help.
Choose the right card
If you’re struggling with repayments, it may be because you’ve got a high-rate, high-fee rewards card, where the interest rate could be as high as 20 per cent. Opting for a card with a substantially lower interest rate – about 7.99 per cent would be better.
Switch to a personal loan
You could secure a lower interest rate than your credit card and the bank will set up strict repayment terms that you will have to meet.
Do not do a balance transfer
This just perpetuates your problem with credit card debt. Getting more credit cards is never the solution.
Put the card on ice
A good way to prevent credit card use is to put the credit card into a container of water and put it in the freezer. If it’s in a block of ice it’s harder to use. Get used to using cash instead. Some of the best savers I know don’t have a credit card at all but rely on a debit card with swipe card functionality.
Do a budget
Do a budget, work out what you can afford to spend. Make sure that you really have a grip of what your spending capacity is and don’t go above it. Do you have surplus? If not, avoid spontaneous purchases. Of all those expenses, what could normally go on the credit card.
Have an emergency fund
Make sure that you have two months of income set aside as cash in a term deposit or similar to ensure that unexpected items do not have to be put on the credit card.
Have a Facebook Marketplace sale
Consider having a garage sale, ebay sale or Facebook Marketplace sale to pay off debt. These days it’s never been easier to sell stuff you no longer want or need. Iphones and the like have made it easier than ever to list and sell unwanted items. One person’s trash is another person’s treasure!