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Yo-yo debting: Credit card holders staying in debt

Don’t say "I do" to debt.

While debt isn't something that should always be avoided, it also isn't something that you want with you forever. Unfortunately, debt can follow you around, affecting your savings, choices and your ability to access credit. According to an analysis conducted by finder.com.au, Aussies seem to be saying "I do" to their credit cards and hitching themselves to debt 'til death do they part.

Figures from the Reserve Bank for August 2013 show that while the total national debt fell slightly by $280 million from July, it has remained at about $50 billion on average for the past two years. However, credit cardholders are repaying about 45% of the average debt and many are likely to be adding just as much to their card each month. This spending habit has been coined "yo-yo debting".

What is the effect of "yo-yo debting"?

When you engage in yo-yo debting habits there isn't only an effect on your own finances, but it also affects the national debt level and Australia’s financial position. National credit card debt has grown by about 1%, or $311 million, over the last two years. Of that amount, the average credit card debt is $3,277 which is likely to stick with yo-yo debtors for their entire life.

If you’re a yo-yo debtor, the pressure is on to think critically about your repayment habits. It costs about $46 each month or over $5574 a year in interest charges to maintain yo-yo debting habits on an average credit card balance. To break the pay-repay cycle, you need to focus more on repaying existing balances, not just maintaining the same level.

That can be easier said than done. Even if the average cardholder were to pay down the minimum each month and not make any further purchases on their card, it would still take over 42 years to pay off this $3,277 debt – and that doesn’t include any annual fees.

How to break the debt cycle

For those guilty of yo-yo debting, a balance transfer of 0% p.a. for 12 months could give you plenty of time to pay off your debt interest-free. For instance, with the average debt of $3,277 it would cost about $273 in monthly repayments to see the debt paid off in a year without interest being charged.

Luckily for cardholders, credit card providers are at war when it comes to balance transfer deals, which means there’s no shortage of offers. There are several cards out there with 0% purchase rate offers, 0% p.a. balance transfer offers and no annual fees. Compare some these options to break out of the yo-yo debt cycle.

Have you considered a personal loan to pay off credit card debt?

Rates last updated February 22nd, 2018
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
Citi Personal Loan Plus
9.99% (variable)
10.95%
$5,000
3 to 5 years
$10
$199
Borrow up to $75,000 to use for a range of purposes. Competitive rate of 9.99% p.a. available to all approved applicants.
Harmoney Unsecured Personal Loan
From 6.99% (fixed)
7.69%
$5,000
3 to 5 years
$0
$500 (Upfront fee)
Interest rates are tailored to each applicant individually, and start from as low as 6.99% p.a. to 26.95% p.a. based on your credit history.
SocietyOne Unsecured Personal Loan
From 7.5% (fixed)
9.51%
$5,000
2 to 5 years
$0
3% (of loan amount)
Based on your risk profile, you will receive a tailored rate between 7.5% and 20.14% with a SocietyOne personal loan. Apply before 31 March 2018 to earn 2 Velocity Points for every $1 you borrow.
HSBC Personal Loan
From 9.5% (fixed)
10.06%
$5,000
1 to 5 years
$5
$150
A competitive fixed interest rate loan with the option to make extra repayments. Rates range from 9.50% p.a. to 15.99% p.a. based on your credit history.
Pepper Money Unsecured Fixed Rate Personal Loan
From 9.99% (fixed)
9.99%
$5,000
1 to 7 years
$0
$0
Apply for up to $50,000 and receive conditional approval within minutes. Interest rates range from 9.99% p.a. to 21.49% p.a. The rate you are approved for depends on individual circumstances.
NAB Personal Loan Unsecured Fixed
11.99% (fixed)
12.87%
$5,000
1 to 7 years
$10
$150
An unsecured personal loan with a competitive fixed rate that you can make additional repayments to without penalty. Note: You must have held a NAB credit card or transaction account for at least 6 months before applying.
Heritage Bank Standard Personal Loan
From 10.94% (fixed)
11.57%
$5,000
1 to 5 years
$5
$200
A competitive personal loan available up to $50,000.
Westpac Unsecured Personal Loan
From 12.99% (fixed)
14.14%
$4,000
1 to 7 years
$12
$250
Borrow up to $50,000 for a term of up to 7 years with this unsecured loan. Apply before 28 February 2018 for a 1% p.a. interest rate discount. Conditions apply.
MyState Unsecured Personal Loan
From 12.99% (variable)
16.42%
$3,000
1 to 7 years
$10
$200
Apply for up to $50,000 and make additional repayments at any time without penalty.
Latitude Personal Loan (Unsecured)
From 13.99% (fixed)
15.19%
$3,000
2 to 7 years
$13
$250 (Loans under $4000 - $140)
An unsecured loan designed for multiple purposes – renovating, buying a car or travelling. Funds can be in your account in as little as 24 hours. If you have an Unsecured Personal Loan with any Big Four bank, Latitude will beat your rate by 1% p.a. Offer ends 18 March 2018
St.George Unsecured Personal Loan - Fixed Rate
From 12.99% (fixed)
14.06%
$2,000
1 to 5 years
$12
$0 (On new loan applications before 28th February 2018.)
Convenient redraw facility and flexible personal loan repayment options with a competitive interest rate. Apply before 28 Feb 2018 for a $0 application fee. Conditions apply.
NAB Personal Loan Unsecured Variable Rate
15.69% (variable)
16.55%
$5,000
1 to 7 years
$10
$150
An unsecured loan up to $55,000 that you can repay early without penalty. Note: You must have held a NAB credit card or transaction account for at least 6 months before applying.

Compare up to 4 providers

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