Addicted to spending: Australians unable to crush credit card debt

Aussies can’t quite tame the urge to splurge according to recent data from peer to peer lender RateSetter which revealed that 28% of balance transfer credit card holders are nearing the end of their promotional period but haven’t managed to crush their debt.

A popular piece of plastic for Aussies who have taken their spending a little too far in the past, a balance transfer card comes with an interest free period that allows you to tackle the outstanding amount of debt on your credit card.

Sounds great, right? Well as it turns out, we’re seriously misusing these particular pieces of plastic - and it is costing us.

According to RateSetter, 44% of Australians are failing to pay off their debt bill within the interest free period because they cannot control the temptation to make additional purchases, with a further 12% not having the discipline to pay off more than the monthly minimum.

RELATED: What happens if I don't pay off my credit card on time?

According to RateSetter CEO Daniel Foggo, by failing to pay off credit card debt within the 0% balance transfer period, Aussies are playing into the hands of banks and lenders.

“It’s no secret that the Banks want to make a profit, and one way they do this is by betting on most people failing to repay the whole balance within the promotional balance transfer period,” he said.

“This leaves the balance on the card at interest rates of around 20 per cent. It’s a bet that has paid off with banks making billions every year from credit card interest.”

How to use a debt consolidation loan to pay off debt

If you’re one of the aforementioned Aussies who have struggled to take advantage of a lucrative balance transfer deal, a low rate debt consolidation loan might solve the problem of ongoing credit card debt.

One of the major positives around this option is that it reduces the temptation to spend.

“One option that can work well for borrowers is to transfer existing balances to a low-rate personal loan, which will help them repay outstanding balances quickly, reduce the amount of interest being paid and cut off the temptation to keep spending,” said Foggo.

“A fixed monthly payment and set payment schedule makes it simple to clear debt.”

According to Mozo’s personal loan comparison tables, a credit card holder in $10,000 worth of debt can take advantage of the ultra-competitive 5.14% variable interest rate (7.61% comparison rate) on Heritage Bank’s Low Rate Secured Personal Loan, paying just $189 a month over five years to clear their debt.

How to use a balance transfer card… properly

But that isn’t the only option for Aussies struggling to pay off debt.

In fact, Mozo research published in January revealed that when used properly, a balance transfer card could save Aussies $755 in credit card interest and with 0% promotional periods as long as 26 months (with a 2.5% BT fee), you could buy yourself some serious time to tackle debt.

“Choosing the right balance transfer deal, with a long enough interest free period that you can comfortably clear your entire balance before the revert rate kicks in is key,” said Mozo Director Kirsty Lamont.

But it is also about having a proper repayments plan in place if you’re serious about crushing your debt.

“Having a plan for how to do that - including knowing how much you should be paying back every month to meet your goal - is also important,” said Lamont.

To make sure you don’t get into the same pickle this time around, here are a few of Mozo’s top tips to make the most of a balance transfer credit card.

  • Avoid new purchases, like the plague: New purchases put on your credit card are charged interest at the regular amount, not the 0% balance transfer rate. Plus, your repayments will go toward these new charges first, so instead of working to chip away at your debt which is the goal here.
  • Consider the BT fee: Depending on how much debt you’re transferring, the BT fee (usually 1-3%) could seriously add up, so make sure you’re aware of every expense that you’ll need to pay.
  • Watch out for hefty annual fees: Another fee worth keeping an eye out for, an annual fee can be another unnecessary added expense which is the last thing you need when you’re trying to double down on debt.
  • Set a debt repayment plan: Maybe this is where you fell of the wagon last time, but it is super important to create a realistic repayments plan to pay off your debt. This way you’ll know how much you need to be putting towards your credit card each month if you’re to have your debt paid off by the end of the promotional period.

Reckon you’re ready to crush your debt? Check out a range of the most popular cards in our database by heading to our balance transfer credit card comparison tables and use the handy calculator at the top of the table to find a deal that is right for you.