The importance of paying off your balance every month
I just received my credit card statement from one of our big banks. The fine print on the statement (which I would guess few of us read) suggested that if I dutifully pay the minimum monthly amount, and don’t put any other charges on my card (they didn’t actually say that, but I am smart enough to read between the lines!) then I would have my $3,736.34 balance paid off in “about 54 years and 6 months”.
That, dear readers, is somewhere around Christmas 2071, at which time I will have just celebrated my 122nd birthday. I will also have paid an estimated $23,166.05 in interest!
Paying the price for convenience
Credit cards are wonderfully convenient. They allow us to buy what we want, when we want, and without huge regard for how we are going to actually pay for it.
In the “good old days” you had to wait until you had the money before buying new clothes, the latest fashion accessories, grain for your horse or whatever else took your fancy. But today? Instant gratification awaits, at the swipe of a small piece of plastic.
Just like fire, credit cards can be a wonderful servant – but they make a terrible master.
What happens when you only make the minimum monthly payment?
Last week, I was looking at ASIC’s Moneysmart website with its counter that tracks credit card debt. Then, the total outstanding credit card debt in Australia stood at just over $32 billion. The interest component alone was $5.4 billion. That is the equivalent of an outstanding balance of $4,383 on each and every credit card on issue in Australia.
Incidentally, I looked at the ASIC counter again 12 hours later and total credit card debt had increased by $3.5m overnight. Must have been a big night on the town somewhere!
No wonder the banks and merchants are so keen on issuing credit cards, and increasing credit limits wherever they can. This is easy money for them.
And remember, they don’t want you to pay off the full balance of your account. Just pay the minimum each month…..that will be fine (for them)!
Tackling credit card debt and generating wealth
If you’d like to generate real wealth, you need to tackle credit card debt as a matter of priority. Increasing credit card debt (and its associated interest payments) are a cancer that is eating away at our society. We must “save our way” out of the poverty trap.
The level of credit card debt in Australia is sickening. So many young people, families and older Australians are being inflicted with the stress that comes from insurmountable debt. Somehow, we have to rise to the challenge and overcome this burden. It’s the only way we can hope to enjoy some level of financial freedom and not be celebrating our 122nd birthday knowing that we have just cleared our credit card debt.
Oh, and by the way, my very helpful bank suggested that if I paid $192.25 per month off my credit card each month, instead of the minimum, I will have it paid off in just 2 years, thereby saving myself $22,281.58 in interest.
Talk to Henderson Matusch for strategies with paying down debt
The examples above highlight the importance of avoiding the use of high interest credit cards. If you do have credit card debt, always try and pay more than the minimum monthly repayment and save yourself potentially thousands of dollars in interest repayments.
To talk to a Henderson Matusch financial expert about your needs, simply call us on (07) 3229 3688 or fill out the simple contact form here.
Source: Centrepoint Alliance