IF DEBT IS A BURDEN, IT IS TIME TO SWITCH
If debt is a burden, it might be time to change your credit relationship, writes Anthony Keane
TACKLING a stubborn credit card debt takes more effort than finding the lowest interest rate.
Discipline, focus and probably some financial pain are part of the process, but the pay-off will be worth it.
Australians’ average credit card balance is $3200 and collectively we have more than $33 billion of credit debt accruing interest, often at an interest rate near 20 per cent.
For someone with a $5000 card debt, that’s about $1000 a year going down the drain.
Consumer finance specialist Lisa Montgomery (below) says getting out of the debt spiral starts with changing your behaviour .
“You can make all the material changes you like… but unless you change your behaviour the same issue will occur again,” she says.
Montgomer y says cash is king if you want to reduce your reliance on credit. Using a card is a non-emotional transaction.
“That little piece of plastic doesn’t really register as money,’’ she says. “It’s a different feeling from handing over our hard-earned dollars. ”
People with several unruly credit cards can consider combining the debt into one lower-interest loan, such as a personal loan, low-rate card or even their mortgage.
The interest savings can be huge, but it’s vital to cancel the offending cards so you don’t reload them with new debt.
MORE THAN MINIMUM
Write down your household spending for a month to find small savings that can be diverted to your card balance. Every small amount counts.
Montgomery says you should never just make the minimum repayment because it will take years to repay.
Balance transfer cards can allow you to move your debt to a zero-interest rate environment for up to two years.
“There’s 150 balance transfer cards from 70 lenders to choose from,” says Credit Card Compare direc-tor David
Boyd. But make sure you understand the rules of balance transfer cards, especially the interest rates they revert to after the interest-free period.
“Don’t spend on the balance transfer credit card. Instead, use the zero per cent interest period to become debt-free,” Boyd says. “As for your old credit card, if it’s no longer needed, get rid of the temptation.”
Help is out there if you need it. Cardholders with serious debt problems should speak with their bank, talk to a free financial counsellor on 1800 007 007, and search online for debt reduction advice.
Putting together a workable budget requires teamwork.
“If you’re married, this means you need to get your better half on board,” Boyd says.
KNOW THE MARKET
There are many websites that help you compare credit cards like moneysaverhq.com.au, creditcardcompare.com.au, finder.com.au and canstar. com.au. Don’t just focus on the interest rate – look at annual fees and interest-free days.
‘Getting out of the debt spiral starts with changing your behaviour’