Australians are increasingly relying on plastic to pay for household expenses, but if you're serious about creating financial wealth cutting your credit card debt must be a priority.
Australians owe almost $50bn on credit cards – an increase of 42% in the past five years, according to recent RBA statistics.
Figures reveal the average credit card debt is $3321, however financial experts argue the typical family credit card debt is likely to be much higher as many households in the red are juggling repayments on two or more cards.
There are currently more than 14 million credit cards lining wallets in Australia – with almost every adult owning at least one.
And more than two-thirds of consumers’ outstanding debt is accruing interest at the average rate of nearly 20% - the highest it’s been in 20 years.
The government recently introduced tough new credit card reforms which include: scrapping over-limit fees, banning unsolicited credit limit upgrades, allocating card repayments to high-interest debts first, and the inclusion of complete account features on credit card applications.
However, the Australian Bankers’ Association warned a parliamentary economics committee that the regulatory reforms could lead to higher consumer charges.
So Australians would be better off reducing debt now, before conditions worsen.
According to MasterCard Australia Country Manager Andrew Cartright, Australians struggling to repay credit cards need to understand the situation and make a personal plan to pay it off.
“Most importantly you must take action and not ignore the problem,” he says.
A plan of attack that includes these tips will help get borrowers back in the black:
1.) Stop spending: sounds ridiculously easy, but you can’t climb out of a hole if you’re hell-bent on making it bigger.
2.) Take stock: Sit down with all your card statements and take a hard look at the facts. Facing the debt can be a major obstacle for people, but you can’t tackle your debt demons until you know exactly what you’re up against.
3.) Set a goal: Determine your long-term goal – for instance, pay your debt off in three years, then break it down into bite-size chunks. Achieving the short-term goals will help motivate you as you move toward the finish line.
4.) Plan of attack: Put your plan down on paper and create a budget for your monthly expenses. Try to spend less than you need and look at ways to squeeze more money from what you earn. Try to create an emergency fund, so you plan doesn’t get derailed by unforeseen circumstances.
5.) Dear diary: write down what you spend monthly to determine where you can trim the fat.
6.) Over and above: Making minimum repayments is the slowest and most painful way to become debt-free. Reduce the interest by paying as much as you can afford.
7.) Consider a transfer: If you can pay off your debts in less than six months, then consider a zero-balance transfer. Read here for more tips.
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