Credit Card Debt Management
- Debt Agreement
- Consolidate your credit card debts into a personal loan
- Transfer your debt to a card that offers low balance transfer rates
- Incorporate the Credit Card debts onto your mortgage
Credit Cards – Easy to get, hard to get rid of.
Most people with serious debt have a fair proportion of credit cards or store cards. Credit cards are often used by lots of people to get through the tough times such as unemployment or sickness. These cards quickly become maxed out and high interest rates contribute to the debt spiral.
Debt has become the norm in Australia, where we currently pay interest on around $33 billion of credit card debt at an average interest rate of 17%.
We pay $14.5 million in interest every day.
The trouble with that, is that all the interest you’re paying stops you getting ahead financially. It’s hard to get rid of credit card debt if you’re paying hundreds of dollars a year in personal debt interest. Added to the problem is that the “Default Rate” of interest on lots of cards can be as high as 29.99% so when you miss a payment you slide further into debt. There is nothing more soul destroying than paying a few hundred dollars off your credit card only to see the same amount go back on in interest.
It’s also hard to see yourself getting ahead when you read at the bottom of your credit card statement that if you are paying off your credit card at the minimum monthly payment it will take you 60 years to pay it off! Debt consolidation might be a means to minimise the impact that your credit cards have on your cash flow. “Debt consolidation” means refinancing your debt onto the lowest interest rate possible – and setting up a realistic repayment plan to get it paid off! There are a few ways that you can do this:
- Enter into a Debt Agreement
- Consolidate your credit card debts into one personal loan
- Transfer your debt onto a card offering low balance transfer
- Incorporate the debts into your mortgage.
Not everyone is eligible to do a Debt Agreement however if you are then it is a very good solution to getting rid of credit card debt in a relatively short time frame.
A Debt Agreement is an interest free repayment plan that includes all of your credit cards and unsecured debts plus some other personal debts with affordable repayments based on your actual income and living expenses.
For more information on Debt Agreements click here
Consolidate your credit card debts into a personal loan
By consolidating your credit cards onto a personal loan repayments are calculated in order for you to be able to pay the loan off over a certain time frame. A personal loan has a defined lifespan which would be considerably less than an open ended credit card.
|Type||Amount owing||% rate||Monthly repayment||Details|
|Credit Card||$10,000||17.0%||$203||Interest = $32,625
over 40 years
|$10,000||10.0%||$215||Interest = $2,748
over 5 years.
Paying an extra twelve dollars per month on a Personal Loan instead of a credit card will help you to pay your credit card off within five years and potentially save you a significant amount of interest. Of course this assumes you can get a financial institution to give you an unsecured personal loan to replace your credit cards. If your credit file has already been affected this may not be possible.
Transfer your debt to a card that offers low balance transfer rates
By transferring your card balances to another, cheaper card that offers a no interest period or a very low interest rate will clear the debt within a much shorter space of time if . Regular payments must be made to quickly reduce the debt. After the advertised number of months at the low interest rate however, all unpaid balances are transferred to the standard interest rate which on average is around 18% so this strategy really only works if you can put a significant dent in the amount owed before the interest rate reverts.
Incorporate the Credit Card debts onto your mortgage
Provided you have both a mortgage and the available equity in your home, incorporating your personal debt onto your mortgage and increasing your repayments proportionally may be an answer. The only thing to be aware of is that even though interest rates on mortgages are much lower than credit cards, you could be paying that interest for a lot more year. It also requires support from your mortgagor which may not happen if your credit rating has been badly affected.
Of course, any debt consolidation strategies can only be successful if you cancel your credit cards and avoid running up further debt. If you can commit to that, though, debt consolidation can potentially save you a lot of money.