Imagine that you have a credit card with a debt of $10,000. We don’t need to examine the whys and wherefores of the amount, I’m sure you have your reasons for this debt.

Now, if you only paid the minimum monthly repayment on that credit card debt at 18% interest, then you would end up paying $26,332 of interest, plus the original $10,000 that you owed over 43 years. That just seems insane.

In 2016 the figures showed:

• Australia’s credit card debt is more than $32 billion dollars
• There’s an average credit card debt of $4,400 per cardholder
• There are more than 16 million credit and charge card accounts in Australia

This makes me wonder – If I don’t have any credit card debt, then who has mine?

At the moment, many credit card interest rates have remained static. This is despite RBA cuts to the official cash rate and despite that the government is now flagging concerns about how long it takes to pay off credit card debt. What I’m now hearing is that many consumers are considering other options.

One of those options is to consolidate small amounts of debt into a personal loan.  This may not be as crazy as it sounds. Some personal loans have a much cheaper rate of interest (7.99% – with a comparison rate of 8.26%). This is more favourable than credit card interest rates of around 20% and like a credit card; interest is also calculated daily on the outstanding balance.

With a $10,000 personal loan at 8.26 per cent on a maximum seven year term, you would only pay $3,201 in interest on top of the $10,000 principal. That’s $23,000 less than the credit card repayments. Personal loans are generally required to be repaid over a fixed period of time.

Of course, if you do take up this option I would expect that you would cease to use your credit card. It just doesn’t makes sense to continue to use a credit card if you have only moved the debt to another form of loan and haven’t paid it off.

The other alternative and one that is preferable both before and after your debt is under control is to have a budget. By calculating your regular costs and income you can take away the stress that debt brings.

A budget doesn’t have to be restrictive. It is merely a way of learning how to live within, instead of without.

©   Carmel McCartin – Budget Bitch

And don’t forget – (The views expressed in this blog are the personal opinions of the author. Don’t rely on them to make financial decisions; you have to make up your own mind. If you don’t like the content – then either stop reading or send me an email)