Tuesday, 03 June 2014 12:02

8 ways to control credit card debt

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According to an ASIC Smart Money site, Australians have an oustanding credit card debt of around $34bn.  The average balance of a credit card is $4,400, so given that interest rates charged on cards are between 15 - 20%pa, this means that Australian credit card owners are paying on average around $800 in interest every year.

With official interest rates currently at 2.5%, and mortgage rates around 5-6%, paying 20% on credit cards doesn't seem a smart move.  So here we list a few ways that those with credit card balances can get control over their credit cards.

 

1. Reduce the credit limit of your card.

2. If you can refinance the credit card using a home loan or cheaper form of finance, then this results in a massive interest saving, assuming of course that you don't simply run up the credit card debt again.

3. Have at least one day per week where you pay cash, and don't use your credit card.  This can be habit forming, sort of like an 'alcohol free day'

4. Reduce the number of credit cards you have in your household to one.

5. We generally suggest that people do not have a credit card linked to their mortgage - this only encourages further spending.  While old fashioned, we prefer mortgage that are paid on a principal and interest basis, with credit cards kept separately.

6. Control the number of direct debits you have linked to your credit card - this can 'sneak up' on the unwary.

7. Shop around for credit cards with a lower interest rate.  These cards may not offer the glitzy reward schemes, but we have seen some 'no frills' cards offer an interest rate of 10%pa - potentially cutting your interst bill in half.

8. Aim to pay the balance off in full each month.

 

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