Now to clear the festive debt

Australians racked up an extra $29 billion in credit card debt over the festive season, and without early action plenty of people could still be paying off Christmas 2017 in 12 months’ time.

Australian cardholders each notched up an average of $1,727 in holiday debt based on figures from comparison site Finder. The interest cost alone could top $230 million.

The news isn’t all bad though. The average card debt accruing interest has fallen from $2,470 in 2012 to $1,890 towards the end of 2017. This suggests we’re becoming better at paying off the plastic.

Even so, while four out of five credit cardholders plan to pay off their holiday-induced debt over the next three months, Finder found the remaining 19% will take longer. One in 20 expect to still be paying off Christmas just gone at the end of this year. Not a great start to 2018.


Balance transfers – one option to clear the slate

One way to trim the tab is with a balance transfer deal. The period of low or zero interest charges can give credit cardholders an opportunity to make headway on their outstanding card balance.

There are currently over 100 balance transfer cards offering 0% transfers. The interest free period varies, but more than half allow a whole year or more interest-free.

The downside is that simply lobbing your debt from one card to another doesn’t address what can be serious overspending issue. If that sounds like you, make a date to speak with me about developing a plan to get spending under control this year.

Bear in mind too, if you can’t clear the slate with a balance transfer deal before the zero rate period ends, the remaining debt can attract sky high cash advance rates.

That makes it critical to use a balance transfer deal to pay off as much of the debt as possible in the interest-free period.

Or…knuckle down to pay off the debt

An easier solution can be to pay as much as possible off your current card.

If you plan to use this strategy, two steps are critical. First, check to see if you’re getting a good deal on the card. Reward-based credit cards for instance charge some of the highest rates around, and you’re likely to pay a lot more in card interest than you’ll recoup with any freebies.

Next, revisit your budget to see how much you can comfortably allocate to additional card repayments. Sticking to the card issuer’s minimum payments may seem easier on your budget today, but it can drag out the debt for years, even decades. That means paying excessive interest charges – money you could be using to build your own wealth rather than the bank’s.

The main point is that credit card debt doesn’t have to be a financial millstone. There is a range of strategies available to get on top of debt. Contact us to discover which approach can work for you, and start freeing up cash to achieve your personal goals for 2018.

Paul Clitheroe is a founding director of financial planning firm ipac (now known as AMP Advice), Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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