Aussie credit card bill reaches record high

Credit cardOn 16 January, 2010, the Sunday Mail reported that Australia’s total credit card bill has reached a record high of $48.8 billion. Combined with the highest interest rates in 20 years, the situation is a money-making bonanza for the banks.

The Sunday Mail reports that there are 14.8 million approved credit cards in Australia. More than two-thirds of them have a balance which is accruing interest at an average rate of 19.7 percent per annum. That means that Australians are spending $7 billion a year on credit card interest charges.

 

Credit cards are certainly an innovative financial product, but they’re also one of the commonest causes of financial hardship. Why?

  • When you use a credit card instead of cash, it’s difficult to keep track of your spending. It’s easy, therefore, to regularly spend more than you earn.
  • Credit cards encourage impulse spending because there are no immediate financial consequences—the pain comes later.
  • Credit card providers lure us with incentives such as frequent flyer points and cash back programs. It seems like we’re getting something for nothing, but are we?
At MyBudget, we meet thousands of people every year whose credit card debt has become unmanageable. For many of them, the trouble began because they were using their credit card as a safety net; as bridging credit when their income wasn’t enough to cover their expenses. Unfortunately, however, credit card debt has a habit of snowballing.
At MyBudget, we recommend cutting up your credit cards. I know that sounds tough, but it’s the fastest way to become disciplined and committed to a budget—not to mention to eliminate your debt and start really powering ahead.You might be thinking “But how will I survive without my credit card?” Here’s the thing: Good budgeting will bring an end to your reliance on credit. When you’re budgeting correctly, you won’t need a credit card to act as your safety net, nor for convenience or for free frequent flyer points (which, if you pay interest on your purchases, are actually costing you a bundle).If you insist on keeping a credit card:

  • Limit yourself to just one credit card. Better still, use a debit card, which only draws cash from your bank account.
  • Only use your credit card for purchasing items in your budget, at the budgeted amount. Then pay off the card balance in full every month.
  • If you’re not paying off the balance in full every month, stop using the card and start paying it down.
  • When you can afford to, always pay more than the minimum payment requirement.
  • Say no when your bank offers you a credit limit increase.

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