As the end of season sales hit stores, it can be tempting to give the credit card a workout to capitalise on lower prices.
For many Australians, the sales period is a time of overspending which can lead to retail regret and excessive debt. However, many Aussies are becoming savvier when it comes to consolidating and paying down their debts. In January 2018, Plenti^ recorded the highest number of applicants for debt consolidation loans since the business started in 2014. According to an analysis of the data, borrowers took out loans worth an average of $17,380 to repay credit card debt. In the post-EOFYS period last year (July – August 2017), 20% of loans were attributed to debt consolidation, a figure that is projected to increase over the same period in 2018.
CEO of Plenti, Daniel Foggo, said: “Retail sales can seem like a great time for consumers to make the purchases they’ve been considering while also saving big bucks. But with most shoppers putting their purchases on credit, in many cases, the savings gained on the day will be cancelled out by the amount of interest that needs to be paid over the coming months. With ASIC reporting that one in six consumers struggling with credit card debt, it is clear credit cards are no longer the smart way to navigate personal finance.”
Aussies who take a ‘buy now, pay later’ attitude at sales time can quickly find themselves in financial distress. By making only the minimum repayments, many cardholders have what’s called a “revolving balance” – which means their debts are growing almost as fast as they’re chipping away.
Plenti calculations show that, on an average minimum repayment of 2%, a credit card debt of $5000 will cost a consumer $102 per month in repayments (decreasing). But when these minimum repayments are combined with an average annual interest rate of 16.99% that original amount balloons into a whopping $14,996, which will actually take the cardholder a lengthy 29 years to finally pay off.
Mr Foggo concluded, “For Aussies struggling to make a dent in their credit card, there are better options out there than simply striving to meet the monthly balance each month. Taking out a low-rate personal loan to pay off high-interest credit card debt is a great option for borrowers looking to regain some control over their financial situation. While many consumers may find thinking seriously about their credit card debt confronting, the post-End of Financial Year period is an ideal time to consider your financial situation and consider debt consolidation.”
Plenti’s top tips for managing debt
- Effectively plan and budget – Drawing up a monthly budget which allocates income against only necessary bills and expenses could result in some leftover cash to increase your repayments, especially if you’re prepared to cut back on all the non-essentials for a while.
- Understand your debt – Taking stock of your financial situation might be uncomfortable, but if you don’t fully understand what your interest means in dollar figures, or if your repayment schedule is right for you, it will be much harder, in the long run, to get your debt under control.
- Consider the alternatives – There are a number of loan options which are far less costly than holding credit card debt. Taking out low rate loans for home renovations, weddings and major purchases could be a feasible alternative to avoid further debt.
- Consolidate existing debt – Keeping track of various credit card repayments with different interest rates and deadlines can add to your financial stress, especially if you find that you’ve missed the interest-free period. Consolidating your credit card debts into a simple low-rate, fixed-term loan with Plenti could see you paying off your balance sooner while saving money in the process.
^Plenti was known as RateSetter prior to August 2020.
This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it. Any opinions, forecasts or recommendations reflect the judgement and assumptions of Plenti as at the date of publication and may later change without notice.