Have you looked at your credit card statement recently?
If you have you would have noticed there is a warning on your statement as part of the Australian Government requirement. This warning is showing you, based on your minimum repayment, how long you will be repaying your credit card for until the whole debit is repaid and how much interest you will have paid in total. And this is based on you never using the credit card again!
To give you an example I had a client, on their statement the warning said (it’s worth noting this is one of their three credit cards) based on your minimum repayment you will have the debt repaid in 27 years and 2 month paying a total of $15467.93 or they could make repayments of $716.57 for 2 years and pay an total of $2049.12 in interest.
Again this is assuming the clients don’t then go and use the credit card which is unlikely, in fact the interest after 27 years would most likely be higher and the debt still current.
So what do you need to know about Credit Cards?
- Up to 55 days interest free has a catch, read more here
- You are charged interest on the outstanding balance every month
- The minimum repayments put you on track to have the debt repaid in the same time as a home loan
- Late payments and over limit charges can affect your Credit History
- When borrowing money your credit card repayments are based on your limit not your balance
How to get your credit card debt down?
There are a few different options you can look at to get Credit card free and it depends on you and your circumstances as to which one suits you better…
Take the second option
With the example above, my client can repay $716.57 per month and have the whole credit card debt gone in 2 years. This will mean not using it again in the future (at least not until it is at an amount you can repay in one or two pay cycles) so it does take discipline but you are rewarded for your efforts saving a massive $13,418.81.
Repay and lower
I once had a client come in on a monthly basis to lower her credit card limit. After a few months I asked her why she kept lowering it and she explained she couldn’t trust herself to not use the available credit so for her to become credit card free she had to pay a large chunk off then quickly lower the limit. She did this in increments until the limit was down to something she could manage and have repaid within the month. This not only got the credit card debt paid off and saved her money but it protected her in the future. This also meant when she went to get a home loan, her credit card limit was nice and low so it didn’t impact her borrowing power at all.
Consolidate it
This option is like the quick fix but the beauty is, it will still get your credit card debt paid off and still save you money in the long run. This option is where you get a personal loan to repay your credit card debt and then you close the credit card (or drastically lower the limit). So lets look at an example, to take a loan of $15 000.00 to repay the credit card debt the repayments over 5 years would be aprox. $340 a month and the total interest paid would be aprox. $4395.00.
The Disclaimer
I must mention the information above is an example only to give you an idea on how you can save money and pay off your credit card faster however you need to consider what suggestion above suits you in your circumstances.
What Next?
If you are serious about getting credit card free then you can either contact me to have a one on one chat about how each option would work for you as well as exact figures on repayments and savings.
Alternatively you can get your own rate estimate here as well as starting your per-approval.