married-couple

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 August 17th, 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)
12.48%
$5,000
3 to 5 years
$0 ($199 fee waived)
Borrow up to $75,000. All approved applicants will receive the advertised variable rate of 11.99% p.a.
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.
NAB Personal Loan Unsecured Variable Rate
From 14.69% (variable)
15.55%
$5,000
1 to 7 years
$150
An unsecured loan with a redraw facility that allows you to access money you've paid in advance. You must have held a NAB Credit Card or Transaction account for at least 6 months before applying.
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 8.66% (fixed)
9.17%
$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, interest rates from 3.7% p.a. to 9.6%.p.a.
SocietyOne Unsecured Personal Loan
From 7.9% (fixed)
9.92%
$5,000
2 to 5 years
3% (of loan amount)
Comparison rates for a 3 year loan range from 9.92% p.a. to 13.63% p.a. for good credit scores A and AA
NOW FINANCE Personal Loans
From 8.95% (fixed)
10.42%
$4,000
1.5 to 7 years
$395 (Based on $10,000)
Get rewarded with a low interest rate for your good credit history. Rates from 8.95% p.a. to 16.95% p.a. depending on your credit credit.
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
1 to 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
NAB Personal Loan Unsecured Fixed
From 14.99% (fixed)
15.85%
$5,000
1 to 7 years
$150
An unsecured loan available for a wide range of purposes for a long period of time up to 7 years. You must have held a NAB Credit Card or Transaction account for at least 6 months before applying.
Bank of Melbourne Unsecured Fixed Rate Personal Loan
From 11.99% (fixed)
12.78%
$3,000
1 to 5 years
$0 (Offer available until 8th September 2017)
Apply for a loan from $3,000 and lock in a competitive fixed rate for up to five years.
St.George Unsecured Personal Loan - Fixed Rate
From 11.99% (fixed)
12.78%
$3,000
1 to 5 years
$0 (Offer available until 8th September 2017)
Convenient redraw facility, flexible personal loan repayment options with competitive interest rate.
Westpac Unsecured Personal Loan
From 12.99% (fixed)
14.14%
$4,000
1 to 7 years
$250
Borrow up to $50,000 for a term of up to 7 years with the unsecured Loan from Westpac

Compare up to 4 providers

 
Picture: Shutterstock

Was this content helpful to you? No  Yes

Related Posts

Bank Australia Basic Home Loan - Variable (Owner Occupier)

A competitive variable rate that allows borrowers to borrow a minimum of $100,000 with a $0 ongoing fee.

NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I)

A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)

Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.

IMB Budget Home Loan - LVR <=90% (Owner Occupier)

Get a competitive rate without features you may not use.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, read the PDS or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms and Conditions and Privacy Policy.
Ask a question
feedback