While credit card use has slowed down, many Aussie credit card holders are holding onto their debt. RateCity predicts it could take over 24 years to pay off current debts.
Total credit card debt is currently a little over $50 billion according to the latest Reserve Bank figures, with the average being $3,282 per person.
While many credit card holders are likely to be making minimum repayments, an improvement on the past 30 years, credit card debt is still a serious issue for Australians.
“While it’s great to see consumers are more cautious about using credit cards, there are too many card holders sitting on big debts and not priortising to pay them down,” said Michelle Hutchison, Spokesperson at RateCity.
The RateCity survey in December last year showed that 11 percent of respondents were making minimum repayments to pay off their debts – which approximates to 1.7 million credit cards.
But with minimal monthly repayments, it would take over 24 years to pay off debt and the total interest charged would cost more than double the original balance.
“By making the minimum monthly repayment of 2 percent on average, the average credit card balance of $3,282 would take 24 years and five months to pay off, based on the average purchase rate of 17.21 percent, according to RateCity. At this rate, you could still be paying off your credit card debt after you finish repaying your mortgage!” said Hutchison.
In light of these results, Hutchison recommends credit card holders to make a bigger effort to end their ‘debt rut’.
“Credit cards can be easy for consumers to fall into a debt rut, because they are very flexible and credit is generally always available. But there are ways for card holders to get out of this bad debt for good,” said Hutchison.
She advises credit card holders to consider consolidating with a personal loan, adding debt to their personal mortgage or comparing balance transfer cards; and increasing repayments little by little will make a big difference to the debt.
“For instance, boosting your repayments from 2 percent to 4 percent will reduce the time it will take to pay off the average credit card of $3,282 from over 24 years to less than nine months, and interest charged would drop by $4,767 to $1,663,” said Hutchison.
You can search, compare and apply for financial products at RateCity.