Home Debt How Much Your Credit Card Debt Is Really Costing You

How Much Your Credit Card Debt Is Really Costing You

written by Shelley Marsh 16/07/2014
credit card cost

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!!!

If you liked this you might also like:

Top Tips For Getting Rid Of Your Credit Card Debt

How To Create A Budget

10 Easy Ways To Save Money

How To Pay Off Your Mortgage Faster

Disclaimer:

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.

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24 comments

femmefrugality 17/07/2014 at 11:10 am

What an amazing eye opener! In it’s much the same, except I think the average interest rates are even higher. Debt free is the way to be!

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Shelley Marsh 17/07/2014 at 9:30 pm

Thanks I am glad you enjoyed it. It is interesting that credit card rates are even higher in the US! Especially given your interest rates are so much lower than ours! Thanks for stopping by!

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Jody at Six Little Hearts 18/07/2014 at 9:57 am

Shelley – I saw that you had written this post and I was avoiding reading it – I have one of those lovely debts! I pay off 3 times the monthly amount but as I have things like car insurance on it – it goes back up again…sigh! Great post!

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Shelley Marsh 21/07/2014 at 5:27 pm

Hi Jody – yes it is a tough one to read. The numbers are a bit shocking to say the least. Thanks so much for stopping by.

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Renee 18/07/2014 at 3:22 pm

It’s scary when you look at it like this. I try to pay off more than my minimum each month. It easily racks back up though.

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Shelley Marsh 21/07/2014 at 5:26 pm

Hi Renee, yes I agree it is so easy to rack the debt back up again!

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Emily @ Have A Laugh On Me 18/07/2014 at 9:02 pm

We usually pay ours off each month.. but not so many others can do that! Sorry I’ve been so slack in visiting! Have a great weekend! Em

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Shelley Marsh 21/07/2014 at 5:25 pm

No worries Emily! I love it when you pop on by 🙂

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Alicia 19/07/2014 at 12:58 pm

We don’t use credit at all very much, we are used to making do with what we have. It’s this time of year when we get our tax and family payment bonuses that we do some well earned shopping!

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Shelley Marsh 21/07/2014 at 5:25 pm

That is such a great idea Alicia! I love how you consider those payments to be bonuses!

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Jason Wong 19/07/2014 at 5:27 pm

The numbers are scary indeed! I think the key is to pay it all off to ensure the interest rates don’t get out of hand. It is, however, sometimes easier said than done.

Great post!

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Shelley Marsh 21/07/2014 at 5:24 pm

Yes I agree Jason! Indeed it is sometimes easier said than done!

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Melissa 20/07/2014 at 5:42 pm

Very important to make sure you pay your credit card if full each month and you will never pay a cent. Which reminds me I think my is due in a few days.

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Kell Kelly 20/07/2014 at 9:26 pm

I love that you have written this post. So many people just see the minimum amount and think we will just pay that amount but don’t seem to realise they won’t get anywhere with it.
We have a $500 credit card that is paid off every fortnight. It is realistic for us, achievable and money wise.

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Shelley Marsh 21/07/2014 at 5:23 pm

That is an awesome strategy Kell! Such a good idea!

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Rebecca 24/07/2014 at 6:04 pm

I refinanced my CC into a lower rate fixed term personal loan – sigh of relief. That minimum repayment for 56 year business is NOT OK! Thank you for the informational piece x
http://www.dancingthroughsunday.typepad.com Bec x

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Shelley Marsh 25/07/2014 at 6:52 am

No worries Rebecca – yes I totally agree the 56 year business is so not ok!

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Hope @NannyShecando 28/07/2014 at 11:01 pm

Argh, super scary to look at it like this!

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