Aussies stuck on debt treadmill
AUSTRALIAN families are facing another year from a debt treadmill, thanks to credit card complacency, research has revealed.
A survey by lender SocietyOne found that of the Aussies who took out a balance transfer card to help pay off their debt faster, 67 per cent had neglected to cancel their existing credit cards and 12 per cent had actually established an extra credit card for every day purchases.
Many were in the dark on credit cards fees too, including early repayment fees (85 per cent) and transfer fees (57 per cent). Revert rates (65 per cent) and interest charged on new spending (57 per cent) were other traps.
Those with balance transfer cards had an average $5907 of debt and took 14 months to pay it off, despite most having an interest free period of 12 months or less. Nearly a quarter (24 per cent) was unable to pay their balance off within the interest free period.
SocietyOne spokeswoman Maria Loyez blamed a lack of education and transparency around balance transfer cards.
"Consumers are not being properly educated … and are leaving themselves open to temptation by not cancelling their old card, or even taking out another credit card," Ms Loyez said. "Many balance transfer cards have a maximum transfer amount that is less than 100 per cent of the available credit limit, so you would need to take out a new card with a higher limit than your old one."
People's main reasons for getting a balance transfer card were to save money on interest (56 per cent), pay off debt faster (50 per cent) and consolidate debt (29 per cent).
"A consumer with a $6000 balance and 12 month interest free period would need to repay $500 each month to avoid being hit with higher rates of up to 22 per cent after the interest free period," Ms Loyez said. "That's before you add on any fees."
Ms Loyez suggested that a personal loan was a more cost effective manner of consolidating debt.
RBA figures showed consumers spent around $30 million on credit cards over Christmas, while OECD data shows Australia is one of the top five countries for personal debt.
Wealth Within chief analyst Dale Gilham said debt levels were a concern.
"We are stuck on a debt treadmill and many of us don't know how to get off," he said. "Identify you have a problem with debt, cut back on non-essential spending … and funnel the cash freed up into paying down your bad debt."
Thalia Stanley Group money mentor Marion Mays noted the importance of budgeting and mindful spending.
"Conscious spending, combined with putting away a minimum of 10 per cent of your entire income into a savings account for investing purposes, is a sure way to help," Ms Mays said. While you may not notice a change right away, it will help lessen your borrowing and interest bills … Once you accumulate some funds, use this for investment opportunities that will appreciate over time and help you build real wealth."