AUSSIES currently owe a whopping $37 billion on credit cards, with an average debt of $4800 per card holder. According to the Federal Government's Money Smart website, the average card holder is paying around $800 in interest per year if their interest rate is between 15 and 20 percent.
1. Consolidate multiple cards
If you have several maxed-out cards, consider rolling all of the debt onto one low interest card to save on interest. Many lenders offer attractive interest rates for a certain period if you transfer the balance of all your cards onto one new card. Just make sure you check what interest rate will apply once the balance transfer period comes to an end.
2. Try to pay at least double the minimum repayment
Once you have consolidated your cards, remember you still need to make more than the minimum payments to make any inroads. For example, if you paid only the minimum monthly payment of $102 on a debt of $5,000 with an interest rate of 18.5 percent, it would cost you a total of $18,530 over 35 years and five months. However if you upped your monthly repayments to $247, you'd pay just $5,929 over two years — that's a saving of $12,601 and 33 years and five months!
3. Use your credit card sparingly
While you are trying to pay off your debt, only use your credit card if you really need to. A new pair of shoes might make you feel good in the short-term, but imagine how happy you'll feel once you've paid off your cards once and for all. Stay focused on your financial goal and, if necessary, leave your credit card at home, so you're not tempted to make impulse buys.
4. Be careful with store cards
Some department stores offer their own credit cards, but be aware they can have much higher interest rates than regular credit cards. Also be cautious when signing up for a store card as part of an interest-free deal.
5. Consider a debit card
If you like the convenience of a card for shopping or paying bills, but don't want the temptation of a credit card, try switching to a debit card. To be able to buy something with a debit card, you must have money in your account. Using a debit card helps you avoid running up debts you will only have to pay back later.
Dianne Charman is an AMP financial planner and mother of two.
Dianne Charman is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706. Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.
To find your nearest AMP financial planner visit www.amp.com.au/findaplanner.