According to the review into credit card lending by the Australian Securities and Investments Commission (ASIC), one in six Australians are falling victim to the ‘debt-trap’ that is credit cards, and the banks are reaping the benefits.
Around 1.9 per cent of Australians are drowning in credit card debt, and a mind-blowing $45 billion dollars of debt is owed nation-wide, with interest being charged on $31.7 billion of it.
ASIC also found that consumers could have saved up to $621 million dollars in interest between 2016 and 2017 if only they weren’t carrying balances over time on a high-interest card. The report found that while some Australians were able to reduce their debt during the promotional period of a balance transfer onto a new card, more than 30 per cent of card holders actually increased their debt by ten per cent or more, not to mention the $1.5 billion dollars credit card holders were collectively charged for annual fees, late payment fees and other associated costs for using their credit cards.
ASIC is now pushing for tighter regulations to ensure customers are only approved for credit card limits they could repay within three years.
ASIC has identified persistent debt, low repayments and poorly suited products for customers as the key issues lenders aren’t addressing, which means lenders are failing to act in the best interests of the consumer, here’s what you can do about it.
How to pay off credit card debt
- Consider a 0% balance transfer offer to minimise the interest payments to paydown your credit card debt faster. But beware – This strategy only works if you have a solid plan in place to pay off the entire balance within the promotional period, and you don’t use this card for any purchases. Otherwise you fall into the trap of paying a high interest rate after the promotional period.
- Arrange to have your credit card repayments direct-debited from your account on pay day and pay more than the minimum repayments.
- Always make the minimum monthly repayments on your cards, but focus on paying as large an amount you can afford on the debt with the highest interest rate first. Otherwise, start with the smallest amount owing and work your way up.
- Close each credit card account as you pay it off.
- Lower your credit card limit
- If you’re still struggling contact the credit provider and ask for the hardship department and organise a repayment plan.
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