As many as 750,000 Aussie parents are charging school fees to their credit cards, leaving them footing not only the back to school bill, but steep interest charges as well, according to a new study conducted by SocietyOne.
The recent research showed that one in five Australian parents with school-aged children regretted putting school fees on a credit card. And according to SocietyOne Co-Founder and Chief Operating Officer, Greg Symons, they’re right to have their regrets.
“It can be a risky move choosing to put your kids’ education on a credit card,” he said.
“Cards are beneficial when paid off monthly. With a major cost such as school fees, the interest and excess fees can impact you in the long term.”
Parents in capital cities were most likely to succumb to charging school fees to their card (22% compared to 14% in regional areas.) Sydney topped the list, with 26% of parents resorting to plastic, while parents in Western Australia were least likely to do so at just 16%.
Over half of the parents who owned up to charging school fees to plastic also said that if money was no longer an issue, paying off debts would be their top priority. This indicates that school fees paid for by credit are straining budgets already stretched thin for many families.
“Swiping your credit card can sometimes seem to be the easier option; but in the end most people will get stung by the high interest rates,” Symons said.
While private school fees in Australia can average around $25,000, SocietyOne found that the average combined credit limit for these parents is $15,457.
Mozo crunched the numbers, and found that a parent reaching that credit limit on a credit card with the average rate of 17.35%, could be paying $223 in interest in the first month and $3,171 over a year. By switching to the lowest rate in the market, 6.99%, they could pay practically no interest in the first month and pay just $1,115 in interest over a year.
Or better yet, they could ditch the plastic all together, Symons added. “It’s important to also remember there are alternative options, such as negotiating a payment plan with the school or sourcing a low rate personal loan, to help you to manage the school costs.”
Other alternatives for parents footing the school fee bill include:
- Building up a high interest savings stash. Reliable savers might choose to spend the year putting money away in a high interest savings account to cover the next year’s school fees. For extra savings oomph, be sure to pick a savings account with a high ongoing bonus rate and make sure you can meet the conditions to earn it.
- Saving money in an offset account. This option offers double benefits - by stashing savings in an offset account, families can reduce the interest they pay on their mortgage and build up a lump sum to go toward school fees at the same time.
- Taking up a credit card with a 0% introductory offer. For parents who rely on credit because they struggle to save up a lump sum, using plastic can be made far more affordable by opting for a card with a zero interest honeymoon period. These offers generally last for 6-12 months, so be sure to have a plan in place to pay off your balance in that time frame.
If you need a low rate credit card to ease the back to school blues, then head over to compare credit cards now.