With Christmas and the holiday season only months away, now would be a good time to resolve any outstanidng credit card issues you have so you can avoid any unwelcome surprises and enjoy the festive season with confience. And we all know that credit card debt which goes unmanaged turns into bad debt. This type of debt can become debilitating and stop you from purchasing an appreciating asset and building wealth moving forward.
The Reserve Bank of Australia recently published figures that revealed that Australians spent $27.5 billion on credit cards for purchases and cash-out transactions in December 2016. And 3.2 billion of this was is estimated to have been spent of Christmas presents alone.
CEO of Collins Home Loans, Rob Emmett says that up to 40% of credit card holders fail to resolve their credit card debt on a monthly basis. “Credit card debt that goes unmanaged can be debilitating, so you will need some strategies for the medium to long term to resolve it” he says.
Whilst these numbers are concerning, if tidying up your credit cards is a priority before we approach the silly season, you may want to follow these handy tips.
Tip 1. Switch to a lower interest rate cards. Transferring your credit card balance to a card with a lower interest rate could provide you with a buffer and assist you to pay your credit card debt off sooner. Some transfers can even incorporate a period of no interest at all. You can then utilise this to your advantage by trying to pay more monies towards the credit card each month as a way to reduce the balance quicker. It is important to read the fine print though, as many of these low interest / no interest cards revert to a higher rate after a period of time.
Tip 2. If you have multiple cards, consider paying off the ones with higher interest first and then cancel the other cards over a period of time. As you clear the debt on each card, you will need to contact each provider one at a time. It is important to close each account properly, as you may still incur fees, even if you no longer use the card.
It is worth noting that, in some cases, provders may make it difficult for you to close your account completely so be prepared to be persistant. If you decide to keep one credit card for emergencies and online payments, a good idea is to lower the credit limit on that card so as to reduce tempatation.
Tip 3. Build up your savings by reducing your discretionary spending:-
- Have a coffee habit? Buy less take away coffees - two coffees at $4 a day equals $2900 a year for example.
- Review your TV subscriptions - Nexflix, Foxtel
- Unsubscribe from online shopping emails - to reduce temptation. What you don’t see you don’t buy.
Tip 4. Debt consolidation loan.
Debt consolidation refers to the process of combining multiple loans into a single one, in order to make their credit more manageable. For example, if you owe $10,000 on your credit card, $2,000 on a store card, and $6,000 on a personal loan, you can look for a debt consolidation loan of $10,000. Apart from leaving you with a single repayment, you no longer have to deal with different interest rates and multiple fees, so it can also lead to savings in this way.
There are two types of debt consolidation approaches that will depend on your circumstances: secured and unsecured debt consolidation loans. A secured loan involves using the equity you have in your home and refinancing your home loan to incorporate your credit card and personal debt.
An unsecured loan involes consolidating multple credit cards and personal loans. For example, if you owe $5,000 on your credit card, $2,000 on a store card, and $6,000 on a personal loan, you can look for a debt consolidation loan of $13,000. You would end up with a single repayment, plus you no longer have to deal with different interest rates and multiple fees.
Contact Rob Emmett, Mortgage Broker today for some advice on how you could use your home loan to consolidate your credit card debt.
It is important to remember that you don’t have to tackle your credit card debt alone. Seek professional advice from your accountant or a debt specialist. Having someone to talk to who understands your situation, can really help.