Credit card debt not smart way to spend

Matamata Chronicle - - News - By DAVID KNEE­BONE

In April this year the Re­serve Bank found Ki­wis owed $3.6 bil­lion in out­stand­ing credit card balances.

At an av­er­age in­ter­est rate of 17.7 per cent, that means we’re pay­ing some­where around $638 mil­lion in in­ter­est ev­ery year.

Imag­ine if rather than pay­ing that money in in­ter­est it went to­wards things we re­ally wanted to spend on – fam­ily, friends, our­selves, pay­ing off our mort­gages or even sav­ing for our re­tire­ment.

At Sorted, we want all Ki­wis to avoid dumb debt and to be­come smarter in the way we use con­sumer fi­nance.

Dumb debt is high-in­ter­est debt that can be avoided.

It in­cludes credit cards that aren’t paid in full each month, fi­nance deals that go be­yond the in­ter­est-free pe­riod and some car loans.

Bor­row­ing to pay can smart if it’s man­aged well.

But if not, it can quickly turn into dumb debt.

While close to 60 per cent of Ki­wis pay off their credit cards in full each month, the rest are pay­ing in­ter­est on their pur-

be chases. When it comes to rid­ding your­self of dumb debt, preven­tion is the best cure. Be­fore mak­ing any de­ci­sion to take on debt, work out how much it will re­ally cost over time.

For ex­am­ple, if you buy a pair of shoes on your credit card for $280 and only make the min­i­mum pay­ment re­quired, they will cost you more than $350.

They aren’t quite the bar­gain you thought they were when you re­alise you’ve paid $71 in in­ter­est.

That’s money that could have gone to­wards your mort­gage, that much-needed hol­i­day, or earned de­posit.

Not only that, but if you just make the min­i­mum pay­ments, those shoes will also take you more than three years to pay off.

The best ap­proach to dumb debt is to pay off as much as you can.

When you’ve paid off one debt in full, in­crease your re­pay­ments on the re­main­ing dumb debt.

And while you’re putting all that ef­fort in to pay­ing off your dumb debt, make sure to avoid tak­ing on any more.

Take charge of your debt. New Zealan­ders shouldn’t be pay­ing $638 mil­lion in credit card in­ter­est each year. If we all make a few changes, we can get that fig­ure down and be fi­nan­cially bet­ter off.

For tips and cal­cu­la­tors to help you work out how to rid your­self of dumb debt, go to sorted.org.nz/shrink.

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David Knee­bone

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