Credit card debt

[sam76]

"Almost every Australian adult has at least one credit card and the nation's card debt has blown out to $32.4 billion.

The Australian Bureau of Statistics revealed yesterday personal borrowing rose 4.1 per cent in December, compared with the previous month"

While the Reserve Bank of Australia has slashed the official cash rate in recent months to 3.25 per cent, credit card interest rates are 18.75 per cent and higher.

http://www.news.com.au/business/money/story/0,28323,25066819-5013952,00.html

Using my very basic math skills that equates to around $1600 debt per man woman and child - with borrowing increasing!

 

[Wysiwyg]

will borrowing increasing!

I hope so.Would be nice to see the money grubbing banks drop in value or go bankrupt when the borrowings aren`t repaid.Legalised exploitation of fellow humans.That`s what they do.

 

[Knobby22]

I thought credit card debt had been falling over the last year.

 

[gordon2007]

You'd be a fool to buy something via credit card that you cannot otherwise afford.

I use my cc as an alternative to cash. Just about everything I purchase is via cc. At the end of every billing cycle, I pay the full amount required. I have never in my life paid interest on a credit card.

I have no sympathy for people who buy tv's, stereos, new mobile phones and other such things and struggle to pay them off on their credit card. You don't "need" the newest most flashy mobile, you don't "need" the newest gps unit.

 

[investorpaul]

You'd be a fool to buy something via credit card that you cannot otherwise afford.

I use my cc as an alternative to cash. Just about everything I purchase is via cc. At the end of every billing cycle, I pay the full amount required. I have never in my life paid interest on a credit card.

I have no sympathy for people who buy tv's, stereos, new mobile phones and other such things and struggle to pay them off on their credit card. You don't "need" the newest most flashy mobile, you don't "need" the newest gps unit.

Im the same I use my cc the majority of time but always pay it off before incurring interest.

 

[Bushman]

I don't have a credit card - absolute rip-off if you are not disciplined.

I use a debit card - it has the same functionality as a credit card but you use your own cash.

As someone else said, if you cannot pay for it out of your own productive capacity, don't buy it.

 

[Beej]

I use my cc as an alternative to cash. Just about everything I purchase is via cc. At the end of every billing cycle, I pay the full amount required. I have never in my life paid interest on a credit card.

That's what I do. The thing is, I have a 55 day interest free period and often have anywhere between $1k and up to $10k balance sitting on that card (I use it to cover a lot of travel expenses etc for which I get reimbursed). So those amounts "count" in the ABS stats, even though not 1c of interest every accrues or is paid by me on that CC. I don't believe this factor is accounted for accurately in those statistics, and I suspect a large number of people use CCs the same way I do.

PS: Although their value is diluted significantly nowadays, I have accrued (and used) HEAPS of frequent flier points over the past 12 years from using CC cards this way.

Cheers,

Beej

 

[gordon2007]

I have a 55 day interest free period and often have anywhere between $1k and up to $10k balance sitting on that card
Beej

Exactly. At times I have a huge balance on it because it's kind of like having nearly two months of credit on it. I keep my money in an interest bearing account. So instead of using cash and losing on the interest, I use the cc and collect interest. It's not much, but in my head I like to think I'm winning that game.

Slightly off topic, but I've called banks to task for making erroneous deductions from my account. Won't say which bank, but one time they took
$00.03 (three cents) from my account. When I called to get it back, the person on the phone laughed and basically said "it's not really worth fixing just three cents". My point was though that 3 cents here, 5 cents there and if they had done it to half a million customers, they just made a crap load of money.

 

[investorpaul]

Exactly. At times I have a huge balance on it because it's kind of like having nearly two months of credit on it. I keep my money in an interest bearing account. So instead of using cash and losing on the interest, I use the cc and collect interest. It's not much, but in my head I like to think I'm winning that game.

Slightly off topic, but I've called banks to task for making erroneous deductions from my account. Won't say which bank, but one time they took
$00.03 (three cents) from my account. When I called to get it back, the person on the phone laughed and basically said "it's not really worth fixing just three cents". My point was though that 3 cents here, 5 cents there and if they had done it to half a million customers, they just made a crap load of money.

There was a similar situation happening with a restaurant, if you payed by credit card, they added proceeded another $1 after you had left the restaurant.

The majority of people A. would not notice a $1 discrepancy B. cant be bothered complaining. But one guy did because $1 x say 50 tables a day = $50. Times 7 days a week is $350, times by 52 weeks is $18,200.

The bank providing the credit card facility then steps in to investigate the restaurant for fraud

 

[glenn_r]

"Almost every Australian adult has at least one credit card and the nation's card debt has blown out to $32.4 billion.

The Australian Bureau of Statistics revealed yesterday personal borrowing rose 4.1 per cent in December, compared with the previous month"

While the Reserve Bank of Australia has slashed the official cash rate in recent months to 3.25 per cent, credit card interest rates are 18.75 per cent and higher.

http://www.news.com.au/business/money/story/0,28323,25066819-5013952,00.html

Using my very basic math skills that equates to around $1600 debt per man woman and child - with borrowing increasing!

I wonder how much of that debt is business using credit cards instead of cheques as I do, my credit card balance is around $20 to $30k each month as I pay most of my business bills with it firstly to stop getting charged bank fees to write cheques and secondly to gain flyer points for family holidays with free travel insurance and concierge for concerts etc as its a platinum card.

I always pay off the balance well before the due date so in reality there is no debt.

I have written about 3 business cheques in the last 12 months and surely I'm not Robinson Caruso.

 

[Absolutely]

Well I have a $20,000 credit card debt sitting on Citibank card at a low interest rate of 2.99% for 24 months which I opened to consolidate all my other credit card amounts in.

Since I am getting more interest (4.25%) in the bank then what I am incurring on the credit card I don't need to pay the thing off for two years.

Well that's what I was hoping, but with interest rates set to go down further in March I may soon find that this arrangement will not be working in my favour much longer, at which time I suppose I will pay the whole thing off.

 

[tommymac]

It's good to see that forumites on a financial site repay their credit card debt. It can be a vicious circle.

I used to work in financial planning and you could tell the people with little self control by comparing their credit card debt with their income.

There is no doubt that the banks need to take some of the blame. While its slowed down now, I'd never go a month without receiving a letter from a bank offering me a new credit card. I don't even need to open them now to know what it is.

 

[nunthewiser]

uses pre paid credit cards ... as in you deposit cash into a credit card and use like normal visa etc to make purchases .

i do not like debt

it may not be everyones cup of tea but im off the belief of if i want something i have to have the money to buy it first

 

[Beej]

Well I have a $20,000 credit card debt sitting on Citibank card at a low interest rate of 2.99% for 24 months which I opened to consolidate all my other credit card amounts in.

Since I am getting more interest (4.25%) in the bank then what I am incurring on the credit card I don't need to pay the thing off for two years.

Well that's what I was hoping, but with interest rates set to go down further in March I may soon find that this arrangement will not be working in my favour much longer, at which time I suppose I will pay the whole thing off.

What's your marginal tax rate? Better redo your calculations based on NET AFTER TAX earnings from your cash account.....

uses pre paid credit cards ... as in you deposit cash into a credit card and use like normal visa etc to make purchases .

i do not like debt

it may not be everyones cup of tea but im off the belief of if i want something i have to have the money to buy it first

But that cost's you more. You still pay all the underlying bank fee's, card transactions costs/merchant fees etc, but don't get the benefit of "free" money during the interest free period.

Cheers,

Beej

 

[jonojpsg]

These stats are really quite ridiculous - I would have thought that a significant proportion (if not most) of this $32bn would be just what we have already shown here - daily living and business expenses that are paid off at the end of each month. Yeah there are plenty of people out there with cc debts they can't pay off or struggle to because they've bought too much stuff, but it makes it sound like there's some big crisis??!

Very useful tool if you ask me (and yes you do need to be disciplined about them).

 

[tommymac]

But that cost's you more. You still pay all the underlying bank fee's, card transactions costs/merchant fees etc, but don't get the benefit of "free" money during the interest free period.

If you choose the right account you could use a debit card with a good interest rate, low monthly fees and no transaction fees. It may still cost more (forgoing interest) but it would only be marginal.

 

[Beej]

If you choose the right account you could use a debit card with a good interest rate, low monthly fees and no transaction fees. It may still cost more (forgoing interest) but it would only be marginal.

The main issue is missing out on the 55 days "free money" period though. $5k @ 6% pa (let's assume that's your savings account rate or even better your mortgage rate) = $45 over 55 days. Do that every month and that's $540/year you save (or earn) extra at no direct cost to you. You can't do this with a debit card as the money is debited from your cash account immediately on purchase.

Cheers,

Beej

 

[nomore4s]

I wonder how much of that debt is business using credit cards instead of cheques as I do, my credit card balance is around $20 to $30k each month as I pay most of my business bills with it firstly to stop getting charged bank fees to write cheques and secondly to gain flyer points for family holidays with free travel insurance and concierge for concerts etc as its a platinum card.

I always pay off the balance well before the due date so in reality there is no debt.

I have written about 3 business cheques in the last 12 months and surely I'm not Robinson Caruso.

I also use our c/c like this with our business although we only pay off 1 supplier with it and the others ore either direct debit or via cheque. Generally have about 25-30k on it each month which is paid off monthly.

I hope so.Would be nice to see the money grubbing banks drop in value or go bankrupt when the borrowings aren`t repaid.Legalised exploitation of fellow humans.That`s what they do.

While I can see your point, when it comes to c/c you can't blame the banks imo, people know if it isn't paid off in time you pay interest not sure how that is exploitation. It's up to the individual to control their spending.

 

[gfresh]

It's probably shouldn't even be classified as "debt" if it's paid off in a short-period of time. They may well only include credit card debt that is outstanding over say 30 days, and if they don't, that is how they should measure it.

At one stage a few years ago I was up to nearly $10k of credit card debt, and it was a truly terrible period of my life. Leading up to it was "only a few $k". Then I was in-between jobs and had to live off my credit card as the dole wasn't nearly enough to cover all outgoings so it blew out. Took over 12 months to pay off, and most 'savings' that I had come in were gone before I could spend it on anything interesting. Definitely learned a good lesson there and only have a small limit now. It can be an easier trap to fall into than some might think, especially if you are just getting started after uni, freshly living out of home, entry level wages, etc.

I think it's pretty common to have a fair bit of credit card debt out there, especially amongst women (to grossly generalise, but from those I know). I know many at my workplace thank each 'family bonus' and 'rudd bonus' as it simply allows them to pay off their credit cards. Shopping is a woman's curse, the act of buying and paying for it are usually disconnected

 

[prawn_86]

There was an article in BRW last week, or the week before, comparing different CC reward systems.

There is one card (an AMP one I think), that if you spend $25k pa you can get nearly $800 worth of rewards from it, after all the expenses etc etc. Not a bad little reture, if you can always pay it off before the interest start accruing