We all love our credit cards. Who doesn't still get that happy feeling when somebody hands over something in a shop and all you had to do was show them a piece of plastic with your name on it? While, credit cards are really useful, they’re also a responsibility. Credit card debt is not as much fun as buying things.
How to avoid a ‘missed payment’ letter
Credit card debt on the up
According to the Australian Investment and Securities Commission (ASIC), the sum total of Australia's credit card debt is heading towards $30 billion, with a collective interest bill of almost $5 billion. The government regulator keeps a pretty scary-looking counter of private debt, which is ticking ever upwards.
According to ASIC, Australians owe on average $4200 each on credit card debt and pay around $750 in interest charges annually (at between 15% and 20%). For many, the personal debt is manageable and serviceable, despite the huge numbers.
However, we can all hit that cash flow wall and you can find yourself struggling with credit card debts. It’s not uncommon, for instance, to find after Christmas when your holiday spending is tallied that a letter has arrived from your card provider.
Nobody wants to get that letter. You know how it goes, it says you’re late with your repayments and you need to make a payment soon. So, how to avoid it?
Repay over the minimum
Look at whether you can pay slightly more than the minimum repayment each month.
ASIC offers a pretty convincing calculation: “If you have $4,400 of credit card debt and only make the minimum repayments, it will take you 31 years to pay it off and cost you around $14,900 in interest. But if you pay off $216 each month you'd pay off your debt in 2 years and save $9,700 in interest.”
If you can't manage that now, depending on the circumstances, contact your card provider, talk over the issue with them and see if you both can agree on a repayment plan.
Dealing with multiple cards
If you have more than one credit card you need to repay, it’s usually best to deal with the one with the higher interest rate first, so you pay as little interest as possible. Alternatively, you could tackle the one with the smallest debt first to take it off the list.
Set up a direct debit
Agreeing to a direct debit is a good way to ensure you don't forget your repayment dates. If you combine this with paying more than the minimum, you will be able to keep troublesome debt at bay.
Sure, it can happen, but being late on your card payments is not a good habit to start; it can be costly and affect your likelihood of getting different types of loans and credit in future. So, keep these tips in mind to ensure your mail stays free of credit card reminders!