The Interest-ing Facts About Credit
There is a fascinating page on ASIC’s MoneySmart website. A “Credit Card Debt Clock” (https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock) that displays in real time how much Australians owe on their credit cards. When we started writing this article it was up to $33,017,544,000 in outstanding debt with an astonishing amount of around $5,441,291,000 per annum owed in interest! That’s more than thirty-three billion dollars in credit card debt with an annual interest bill of well over five billion dollars! At time of writing this represents just over $4,252 per card holder in Australia.
You might be wondering why is there more than $5,400,000,000 owing just in interest on Aussie’s credit cards – read on and all will become abundantly clear.
Will you still have your credit card purchases in nine years?
If you owed the average $4,252 on your card and the credit provider required you to pay a minimum monthly payment of 2% of the balance, you would have to pay only $85 per month. At 20%pa interest it would take you just under 9 years to pay $4,252 off! If that sounds incredulous, over this time you would repay a total of $9,184 – yes, an extra $4,932 in interest!
But wait, it gets even more interest-ing!
If you pay just twice the minimum monthly amount ($170 in this example) you would knock more than 6 years off your debt, paying it all off in just under 2 years and 9 months, and save yourself over $3,642 in interest. So the best plan of attack is to pay as much as you possibly can every month – preferably the entire balance.
Many people think they will be able to control their credit card debt, but as you can see, when it comes to compounding interest, a small balance can quickly get out of hand.
If you have a credit card debt around the average Australian balance and are struggling to get on top of it, please seek professional advice. Acting early will save you many thousands of dollars – not to mention your credit rating.
FOR YOUR INFORMATION
ASIC’s MoneySmart website www.moneysmart.gov.au Borrowing and credit – Credit cards – Credit card debt clock