Getting stuck on the debt treadmill

AUSTRALIAN families are facing another year on a debt treadmill, thanks to credit card complacency, research shows.

A survey by lender SocietyOne found that of the Aussies who took out a balance transfer card to pay off their debt faster, 67 per cent had neglected to cancel their existing credit cards and 12 per cent actually established an extra card for everyday purchases.

Many were in the dark on fees: 85 per cent did not know about early repayment fees and 57 per cent were unaware of transfer fees; 65 per cent didn’t know about revert rates, and 57 per cent did not realise interest was charged on new spending.

Those with balance transfer cards had an average $5907 of debt and took 14 months to pay it off, despite most having an interest-free period of 12 months or less. Nearly a quarter (24 per cent) were unable to pay their balance off in the interestfree period.

SocietyOne spokeswoman Maria Loyez blamed a lack of education and transparency.

“Consumers are not being properly educated … and are leaving themselves open to temptation by not cancelling their old card,” Ms Loyez said.

“Many balance transfer cards have a maximum transfer amount that is less than 100 per cent of the available credit limit, so you would need to take out a new card with a higher limit.”

“A consumer with a $6000 balance and 12-month interest free period would need to repay $500 each month to avoid being hit with higher rates of up to 22 per cent after the interest-free period,” Ms Loyez said. “That’s before you add on any fees.”

RBA figures showed consumers spent around $30 million on credit cards over Christmas, while OECD data shows Australia is one of the top five countries for personal debt.

Wealth Within chief analyst Dale Gilham said debt levels were a concern.

“We are stuck on a debt treadmill and many of us don’t know how to get off,” he said. “Identify you have a problem with debt, cut back on nonessential spending … and funnel the cash freed up into paying down your bad debt.”