Us Aussies have a love affair with the ‘plastic fantastic’. According to The Money Smart website Australians in total have about $34 billion in credit card debt or an average of $4,400 per credit card holder. But how much is that credit card debt really costing us?
Assuming you have the average credit card debt of $4,400 and decide to buy nothing else on the card and your interest rate is 18% (most cards range between 17%-19% depending)… here are the numbers:
|Repayment Made||Total Cost||Time Taken to Pay Off|
|Minimum (2%)||$14,883||over 31 years|
|$100||$7,056||5 years & 11 months|
|$150||$5,725||3 years & 3 months|
Yes, you read it right!!! If you only make the minimum repayment it will take you over 31 years to pay off the $4,400 debt and cost you a total of $14,883!!!!! What a rip-off!!!! This is why only making the minimum repayment on your credit card is a big financial mistake!!! If you decided to increase the repayment to $100 per month it means that you will pay off the same debt in 5 years and 11 months and it will cost you $7,056. This is a whopping saving of $7,827 and around 25 years off your debt compared to only making the minimum repayment!!!! If you choose to increase the repayment again to $150 per month – this will mean you will repay the debt in 3 years and 3 months and it will cost you $5,725. Increasing the repayment by this $50 will save you $1,331 and it will cut 2 years 10 months off your repayment time. It is amazing how small increases in repayments can make a big difference in how much your debt actually costs you.
If you are interested in the numbers for your debt, make sure you check out your credit card statement as your bank now have to disclose how much your debt costing you if you only make the minimum repayment. Last time I checked mine it would take me 49 years and 2 months to pay off my monthly debt at the minimum repayment and cost me many multiples of the current debt!!!!! Ouch!!!!! (Needless to say I pay off my credit card every single month J) Or you could click here to head over to the MoneySmart credit card calculator and do the numbers for your own debt. You might be surprised how much your debt is really costing you, but also what great savings you can make by making even small increases in your repayments.
Credit cards can be great tools if used wisely, however beware, if you don’t pay them off every month they can cost you a fortune!!!
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The information contained in this post is general in nature and does not constitute financial advice. Please see your financial advisor for advice specific to your individual circumstances.