Worried about unpaid credit cards? Australians owe about $50 billion on credit cards with about three-quarters of that debt accruing interest at double digit rates.
Credit card debt is the very worst kind of debt. It drags on our personal budget, and it also drags on the national economy. While a mortgage or school fees are also a lot of money for a household budget, they are nonetheless an investment – one in an appreciating asset and the other in the future of your children.
Consider these facts. If you owe $10,000 in credit card debt with an interest rate of 14.9%, and you pay $400 per month, it will take you over 30 months (2.5 years) to pay off the debt including the suffering $2,400 in interest charges. That assumes you don’t buy anything new to add to the debt.
If you are able to increase your monthly payment to $600 and get a lower interest card, you could be done in 19 months and pay less than $1,200 in interest.
Here are the top 4 tips for dealing with credit card debt.
- If you’re carrying credit card debt, the first thing a financial advisor will tell you is to pay it off and flick the card unless you are disciplined enough to contain your spending to what you’re able to pay off each month.
- If you can prepare a budget and stick to it, then get a credit card which gives you the most interest free period and pay off the bill every month. When used that way, credit cards are a wonderful facility and convenience. Shop around banks and financial providers for the best credit card options. Read the fine print on card policies, especially those linked to so-called rewards.
- Once having made the decision to pay off your credit card, do some ‘what if’ planning using one or more of the many online calculators that are available to help you plan. These calculators can help you understand your true financial position, help create a financial roadmap, prepare a budget, and determine how much you can afford towards retiring your credit card debt each month.
- Make paying off your credit card your number one financial objective for 2013, and you’ll finish the year in a better place than now. Credit card debt doesn’t have to haunt us forever. Paying off you credit card, and learning to manage it, will put you and your family in a much healthier financial position than you thought possible.