According to a Finder.com.au survey conducted in June 2016 more than 70% of Australian adults own credit cards, with more than 16 million credit cards in circulation and a national debt of over $32 billion accruing interest.
Furthermore, according to ASIC statistics the average debt per credit cardholder currently stands at around $4300, which will cost $2139 in interest over 5 years at 18% p.a. The statistics also reveal that the average credit cardholder has 2.19 cards. Do the maths yourself to see what that reveals!
With the plethora of card types on offer (e.g. reward cards, free balance transfer, low rate cards etc., etc.), who is really winning out of the broad range of cards on offer? I would argue that it is not the consumer!
When you really think about it, unless you are using your credit card as a traditional charge card - that is, using it as an expense account and then clearing the balance in full before the due payment date each month you are losing and your bank is winning.
As per the statistics quoted above, if you operate multiple credit cards that have a balance carried forward each month, you are just increasing the magnitude of your losses, thus increasing your bank (or banks) winnings.
The stark reality with regard to credit card use is that unless you can clear your credit card balance in full each month you are living beyond your means and you need to make changes to the way you manage your money.
To illustrate my point, as an example if you have a credit card with a $10,000 credit limit and the current balance owing is $5,000, you need to have $5,000 available in salary and/or your savings account at the end of the month to repay the credit card debt in full to then be breaking even from a zero interest charge perspective.
Too often over the years I have seen people who would view the scenario above as still having the capacity to spend a further $5,000 (as the card limit is $10,000). In this example if the cardholder increases the balance owing to the $10,000 limit they are actually deepening a financial hole for themselves and increasing the level of their bank’s interest windfall.
To improve your budgeting direction, and break yourself out of the cycle of credit card overuse and interest expense contact Leigh at Empower Money Management on 0407 439 827 or firstname.lastname@example.org