How to cure credit stress

Cash-strapped Australians feel they are going backwards but there are ways out, writes Sophie Elsworth

MANY households feel they are already going backwards financially this year, after overspending at Christmas and racking up too much debt.

The pressures of mounting balances on credit cards, personal loans and buy now, pay later schemes are among the key drivers pulling on our purse strings.

Research commissioned by lender CUA quizzed more than 1000 people last month and found just 21 per cent believed they had their finances under control. It also found men felt more in control of their money than women.

CUA head of member experience Todd Skerman said the research showed, on average, that people owed $4000 or more on credit cards and about $28,000 on personal loans. He also warned of the dangers of relying on buy now, pay later schemes such as Afterpay and Zippay. “If you don’t meet the interest-free periods, it’s no different to how a credit card works,” Mr Skerman said.

“Are people clear on what they are signing up for? Know when you are managing debts on higher interest rates ... what you can do about it.”

Latest Reserve Bank of Australia data shows the nation’s credit card debt is at $52 billion, and more than $31.5 billion is accruing interest.

Personal loan debt is estimated at $74.8 billion.

Many credit card statements from the December spending boom have arrived and are causing stress. Credit cards typically have doubledigit interest rates, while personal loans can be less than 10 per cent.

Buy now, pay later schemes don’t charge interest as long as strict payment criteria is met, but there are hefty late fees.

Rising Tide Financial Services managing director Chris Browne said leaving your credit card home was a good way to get back in the black. “Consider using a debit card,” he said. “They are low or no cost and you won’t drown in debt.”

Mr Skerman said digging yourself out of debt could be as simple as going to back to the “old adage ... save for something and then buy it”.

“We live in an instant gratification world so people’s ability to do that is supported by credit products,” he said.

CUA’s data shows about 14 per cent of people believe it will take them more than six months to repay Christmas credit card debt.