Australian credit card debt soars 10% in a year: How can you escape the trap?
We're carrying larger credit card balances, meaning bigger interest charges.
The average unpaid credit card balance in Australia is now $1,780, according to Reserve Bank statistics.
While that's still far off the 2012 peak of $2,471, it has jumped 10% in the last 12 months.
Australian credit card spending flatlined during the mid-2010s, in part due to the invention of buy now pay later services like Afterpay, which launched in 2014. Card spending fell off a cliff during COVID.
But credit card spending is on the rise again. The average Australian has a credit card balance of $3,718.
Most of us pay this off each month. But those who don't are paying hefty interest charges.
In credit card debt?
Get 0% interest with a balance transfer credit card
Let's say you have the average unpaid card balance of $1,780. We'll assume your interest rate is 22%, which is the worst case scenario but pretty common.
If you paid that off in 12 months with no other spending on the card, you'd pay $219 in interest on top.
If you paid it off in 24 months you'd pay $436 in interest.
Of course, many people don't pay off their card balances. They pay off a bit each month but let the balance stay there, sometimes growing but always incurring expensive interest charges.
And there are plenty of people carrying around credit card debt and a buy now pay later balance as well. Those late fees can cost you even more than the interest on your credit card.
How to tame your credit card debt
- Get serious about paying off your balance. It's easy to make the minimum monthly payment and ignore your growing balance. Instead, check that balance each month and make a plan to pay it off. Figure out how much you can realistically afford to repay each month and set the money aside. As you shrink the balance the interest charges become far less damaging.
- Watch your card spending. Unlike a debit card, a credit card lets you spend money you may not actually have. Keep an eye on your spending habits and try to keep new spending down. Otherwise your efforts to repay your balance will go nowhere.
- Consider a balance transfer. If you can't pay off your balance because the interest charges are killing you, do a balance transfer. This means getting a new card with a special 0% introductory offer. You get up to 2 years to repay your balance with no interest charges (and a one-time balance transfer fee). Just make sure you actually pay the balance down in time. Once the 0% offer ends you get charged a very high interest rate.
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