One in six consumers are battling out-of-control credit card debt, and the odds are stacked against them clearing the slate.
Credit cards can be extremely convenient but a new report by money watchdog ASIC highlights their dark side.
Over half a million Australians are behind with their card payments; 930,000 have a persistent credit card debt; and 435,000 cardholders make only small payments that may barely cover interest charges.
All up, Australians owe $45 billion in credit card debt, and ASIC’s report shows what a debt trap they can be.
For a starters, rates remain persistently high.
And according to research group RateCity, some providers even offer credit cards to people on incomes below $15,000, which is a real worry.
Getting on top of card debt can be challenging.
One in two lenders set monthly repayments at just 2 per cent of the outstanding balance, which can drag the debt out for decades.
ASIC’s announcement that lenders will be required to assess whether card applicants can afford to repay a credit limit within three years is a positive step.
But it’s not much help if you’re facing mounting card debt today.
A balance transfer deal with a period of zero or very low interest can offer a solution, but making it work calls for discipline.
To make the most of these deals, work out how much you need to pay each month to clear the balance before the promotional period ends.
Resist the urge to use the new card for purchases.
Instead, aim to wean yourself off credit cards altogether, and get into the habit of reaching for a debit card instead.