How to manage your credit card debt
Whether you’re a spend-happy shopper or a more conservative spender, it’s always important to keep your finances in check. Particularly when you’re strapped for cash, signing up for that new credit card can be an enticing option for getting some extra money in your pocket. However, the shiny piece of plastic with a few thousand dollars on it can quickly cause you to fall into debt if you only make the minimum repayments each month.
Realities of credit cards
Although many of us may be aware of the perils of credit card debt, a recent study from the Australian Securities and Investments Commission (ASIC) revealed that more than 1 in 6 Aussies are stuck in a credit card “debt trap”, totalling $45 billion. That’s more than 10 times Australia’s foreign aid budget!
What’s even more concerning is how quickly a bit of overspending on your card can result in far more debt than you initially signed up for. RateSetter calculations show that, on an average minimum repayment of 2%, a credit card debt of $5,000 will cost a consumer $102 per month in repayments (decreasing). But when these minimum repayments are combined with an average annual interest rate of 16.99% p.a. that original amount of $5,000 balloons into a whopping $14,996, which will actually take the cardholder a lengthy 29 years to finally pay off.
Fortunately, credit card debt doesn’t have to weigh you down forever, and RateSetter could help.
Getting back into black
So, what should you do if it feels like you’re drowning in debt that will take decades to pay off? An appealing option for some is to use a balance transfer credit card, which allows you to transfer your debt onto another card to pay off at a lower special interest rate. However, the low interest rate may only be valid for a limited time, for example, a five month period. If you’re unable to pay off the balance before the end of the balance transfer period, the interest rate could jump up to a rate as high as 21.99% p.a. until the debt has been paid off. This could prove to be very expensive.
The silver lining is that conquering your credit card debt is doable, even when it feels impossible. For example, consolidating your credit card debts into a simple low-rate, fixed-term loan with RateSetter could see you paying off your balance sooner while saving money in the process. It’s an alternative that has allowed many Aussies to become savvier when it comes to consolidating and paying down their debts.
Taking stock of your finances, whilst an uncomfortable exercise, can allow you to reap the rewards in the long run, particularly if you’re feeling the burden of credit card debt. To explore your options for debt consolidation, visit RateSetter.