Yahoo Finance Aussies struggle with $40 billion in debt: 4 tips to pay it off
Credit card debt in Australia has soared. Here’s how to pay yours down.
Aussies are struggling to pay their credit card debt as expenses soar, according to new research.
A Finder survey of 1,080 respondents – 603 of which had a credit card – revealed 16 per cent of Aussie card holders were over their credit limit or unable to make repayments. That’s the equivalent of 1.8 million people struggling with credit card debt.
Australian credit card balances totalled $40.3 billion in May, according to data from the Reserve Bank (RBA), and almost half (46 per cent) of this was accruing interest.
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Finder money expert Sarah Megginson said Australians were becoming more dependent on credit cards during financially hard times.
“The cost-of-living crisis is tough for everyday Australians to manage, and economic conditions are hindering consumers’ ability to pay their credit cards down,” she said.
One in 10 Aussie cardholders had missed one or more minimum repayments on their credit card debt - equivalent to 1 million card holders - the research revealed.
Megginson said going over your credit card limit could result in serious consequences.
“There are immediate impacts like fees and interest, which can add up to burden you with a lot of extra costs over time,” Megginson said.
“Going over your limit is a red flag for lenders that you may be a riskier borrower, which could affect your borrowing power when you want to take out a loan or apply for a mortgage.”
Megginson said if your lender allowed you to overdraw your account and exceed your credit limit, you’d likely be required to repay the overlimit amount immediately.
“Future transactions may be declined until you pay down some of the balance to get it below your limit again,” she said.
How to pay off your debt
Megginson said transferring your outstanding balance to a 0 per cent interest balance-transfer card could be a great way to reduce your debt, as long as you cancelled your existing card once you’d transferred the debt, and you didn’t spend on the new card.
“Keep in mind that if you keep spending on your old card or start making purchases with your 0 per cent interest card, you’ll cancel out the benefits of the interest-free periods and you could end up in a worse position, with two credit card debts and an even bigger mess to sort out,” she said.
How to pay off credit card debt faster:
Make regular repayments: Paying on time means you'll avoid late fees (if your credit card charges them). This means you need to make at least one payment by the due date on your credit card statement. If you get paid weekly or fortnightly, you could also time repayments around payday so they fit in with your routines.
Pay more than the minimum: Making only the minimum repayments on your account will keep you trapped in debt for longer and you'll pay more interest than you need to. For example, a $2,000 debt at 20 per cent interest and a 2 per cent minimum payment would take around 9.03 years to repay and cost $2,336 in interest if you only paid the minimum amount. Repay an extra $50 each month and the debt could be paid off in 2.33 years, with just $519 in interest charges.
Focus on paying off one card at a time: If you're paying off a few credit cards, you'll need to pay at least the minimum amount required for each account. Beyond that, you can pick the one with the highest interest rate or the one with the smallest balance and pay more off that card until the balance is $0. Close that account and then focus on the next one.
Consolidate debt: Another way to deal with a few different debts is to combine them into a single account. This is known as debt consolidation and helps reduce the number of fees and interest charges. Balance-transfer credit cards let you transfer one or more credit card balances onto a new card, usually offering a low or 0 per cent interest rate for an introductory period. This rate can last up to three years but, after that, a higher ongoing rate applies if you haven't paid off the whole balance.
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