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Yo-yo debting: Credit cardholders staying in debt

Rates and fees last updated on

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 June 28th, 2017
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment Product Description
Citi Personal Loan Plus
From 11.99% (variable)
12.77%
$5,000
3 to 5 years
$199 (monthly fees waived in the first year)
Borrow up to $75,000. All approved applicants will receive the advertised variable rate of 11.99% p.a.
RateSetter 2-Year Personal Loan
From 4.69% (fixed)
7.11%
$2,001
2 to 2 years
$0 (Upfront fee $250 for loan terms of 2 years and above)
This peer-to-peer loan is only available for a 2-year term at the rate of 4.69% p.a.
RateSetter Personal Loan
From 8.46% (fixed)
8.97%
$2,001
0.5 to 5 years
$0 (Upfront fee $250 for loan terms of 2 years and above)
Ratesetter allow you to get a personalised rate based on your credit score.
MyState Unsecured Personal Loan
From 12.99% (variable)
16.42%
$3,000
1 to 7 years
$200
Apply for up to $50,000 and make additional repayments without penalty.
Pepper Money Unsecured Fixed Rate Personal Loan
From 9.99% (fixed)
9.99%
$5,000
1 to 7 years
$0
Apply for up to $50,000 and receive conditional approval within minutes.
CUA Discount Fixed Personal Loan (Loans over $30,000)
From 10.99% (fixed)
10.99%
$30,000
1 to 7 years
$0
Take advantage of a competitive fixed rate and no monthly fees when you borrow over $30,000
Latitude Personal Loans (Unsecured)
From 13.99% (fixed)
15.2%
$3,000
2 to 7 years
$250 (Loans under $4000 - $140)
An unsecured loan designed for multiple purposes – renovating, buying a car or travelling. Funds can be in your count in as little as 24 hours.
QT Mutual Bank Personal Loan
From 12.95% (variable)
13.54%
$3,000
5 years
$395 (establishment fee)
You can use this personal loan to buy just about anything: a new boat, home renovations, a holiday or even to consolidate existing debt. Only available to Queenslanders
SocietyOne Unsecured Personal Loan
From 7.88% (fixed)
9.9%
$5,000
2 to 5 years
3% (of loan amount)
Interest rates for a 3 year loan range from 7.88% p.a. to 25.49% p.a. Comparison rate from 9.9% p.a. to 26.74% p.a. for good credit scores A and AA

Compare up to 4 providers

 
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