How Aussies are ditching the credit card debt and starting to save

A Current Affair investigates the debt crisis and speaks to a financial guru who could have the answer

Australia’s national credit card debt has skyrocketed to around $32 billion and climbing. We’re paying more than $5 billion in interest alone, and the average Aussie credit card holder owes more than $4,000.

So how can we get our debt down and gain financial freedom? A Current Affair met families who have escaped the trap of debt and have shared their secrets, as well as getting financial expert Scott Haywood’s top tips on how to cap your credit and get out of debt.

It’s certainly an unspoken Australian epidemic — we’re a country that’s addicted to credit. While the average credit card debt may be $4,000, some Aussies are struggling with credit card debts of tens of thousands of dollars.

“Everyone else has debt, it’s just a normal thing to do now — to have a credit card, have debt and spend the rest of your life working,” Jordan Pyne told A Current Affair.

Along with her partner Callan Parker, Pyne has racked up $17,000 of debt — and the couple are still in their 20s.

Finance guru Scott Haywood says we need to change the way we approach giving and receiving credit. “Let’s reform and change how much credit we’re actually going to give,” he suggested.

It seems sensible given that Pyne and Parker are still struggling to manage with the weight of their credit card. “We’re just able to afford the four walls around us and we’re on a very, very strict budget,” Pyne said.

The couple’s debt started fairly modestly with a $2,000 credit card that was approved in just ten minutes. But it didn’t take long for their debt to spiral out of control.

“It impacts things in the future that at 21, we shouldn’t even be thinking about,” Pyne said. “ There’s no hope for kids in the next five years, because we can’t afford it… It’s something we both want really badly, but just can’t afford to.”

9Saver's A Current Affair Credit Card Savings Tips:

And it’s not just the stress of knowing you’re being held back by debt, the average Aussie’s adult’s credit card debt of $4,000 — factoring in an interest rate of 20% — will take 40 years and six months to pay off on the minimum repayment. And that $4,000 debt will cost them $18,000 in interest.

A Current Affair viewer Fiona Brand racked up $8,000 of credit card debt while at school thanks to an addiction to shopping — and that debt has shadowed the now 46-year-old for years. “I guess it’s just in their interest to keep you in debt,” Brand said.

Interest on repayments is certainly something affecting many who are struggling with debt. “I’ve estimated around about $4,000 in interest,” Brand explained of what she has paid on top of the initial debt — which is half the money she was loaned by creditors in the first place. “It’s incredibly frustrating when you think about the amount,” Brand said.

Like many twenty somethings, Bryanna McDermott thought the answer to happiness was in an AMEX. But overseas trips and fancy restaurants soon left her owing more than $30,000 on her credit card.

“On the outside it looked like I had everything, but on the inside I was dealing with some really crippling debt,” McDermott said. Then, one day, McDermott had enough of her spiralling debt and put herself on a debit diet.

McDermott told A Current Affair that she achieved a feat many would see as impossible, managing to get herself out of $30,000 worth of debt.

“I really stripped it back and made it incredibly basic, that’s the only thing that’d work for me. So I’d sit at my kitchen bench and literally use a piece of paper to seperate my cash into three key stashes,” she said.

Her plan? McDermott factored 60% of her income towards ‘expenses’ — rent, groceries, power bills and all the items that are essential, if a little less fun. She then allocated 20% to ‘everyday savings’ — the ‘in case of emergency’ fund that it’s important to have. McDermott then allocated 10% to spend on herself and the final 10% for the future to invest.

Since the credit card debt came out of her expenses allocaton, in just three years she was able to pay off the entire $30,000 she owed.

“Now I have my own home, about to buy my second property and I’ve also started my own share portfolio,” McDermott said.

Finance guru Haywood said that because credit cards have interest rates of 20% compared to personal loans, which have interest rates of 8% or 9%, and home loans at around 5%, credit cards can be a trap. So what are the big mistakes people make? According to Haywood, the first one is switching to a 0% credit card.

“As soon as you chop up your old credit card and go to 0% on a new card — as soon as you make a transaction on that new card, that’s interest at 20%. So people need to be more aware that just by clearing that card you’re not going to elimiate more interest charges,” Haywood explained.

And let’s not forget the tempting cash advance option.  “You’re not only paying high levels of interest, you may also be paying fee advancement fees or cash advancement fees — which could be anywhere from $30 to $40 or $50 per transaction,” Haywood said.

Kirsty Lamont from Mozo recommended switching to a lower rate card if your credit card charges you more than 20% interest rates.  If a credit card is a must, it’s important to make sure you’re getting a good deal. Lamont said that you can save around $800 a year by switching.

The American Express low rate credit card, the Community First McGrath Visa credit card are two of the card that offer ther lowest rates on the market of 8.99%,” said Lamont. “There’s also a couple of other cards under 10% like the Bank First low rate credit card and the G&C mutual.”

MORE LOW RATE CREDIT CARDS

Card Balance transfer Purchase rate
Westpac Low Rate Credit Card Exclusive Offer* 0% p.a. for 26 months (2% balance transfer fee applies) 13.49% p.a.
ME frank Credit Card* No offer 11.99% p.a.
Virgin Money Low Rate Credit Card* 14 months 0% p.a. then 21.69% 11.99% p.a.
Bank Australia Low Rate Visa Credit Card* N/A 9.39% p.a.
Bankwest Breeze Mastercard* 13 months 0% p.a. then 12.99% with a 2% fee 13 months 0% p.a.

then 12.99%

Bankwest Breeze Platinum Mastercard* 13 months 0% p.a. then 12.99% with a 2% fee 13 months

0% p.a.

then 12.99%

NAB Low Rate Card* 6 months 0% p.a. then 21.74% with a 2% fee 6 months

0% p.a.

then 13.99%

St.George Vertigo Platinum Credit Card Exclusive Offer 24 months 0% p.a. then 19.49% with a 1% fee 12.74% p.a.

Haywood believes there are too many dud products on the market — and he’s calling for new laws to cap credit.

“I think the banks and the government should look at giving credit card limits at 5% of peoples assesable income, reviewed annually based on their noticed of assessment. So that means that if you’re on $50,000 a year, the max credit card you can get with all lenders is only $2,500,” he told A Current Affair.

However, for Brand, there was only one more option left, and that was to cut up the credit card.

“I went to a friend who’s a financial advisor and he actually suggested a small low interest rate loan to consolidate both cards, and effectively pay a much lower interest rate. And that has actually really been an effective way of erasing the debt,” Brand said.

*The one thing you must remember about credit cards*

Credit cards are an incredibly powerful tool. When used correctly, they can greatly help you manage your cash flow, live interest free and earn rewards while doing so. When credit cards are abused, they can significantly hurt your finances.

What’s the catch? To enjoy these interest free days on purchases, most cards require you to repay your balance in full at the end of the month (and not be carrying a balance). This means that “55 days interest-free” is only useful to you if you intend to repay your debts in full.

Try and avoid becoming a statistic; manage your credit card, reduce your spending and maintain discipline in repaying the balance.

* In highlighting particular offers we are not making specific recommendations as this article does not cover all available products and may not compare all features relevant to you. Any advice provided is general in nature and does not take account of your needs, objectives or financial situation. Individuals should consider their own circumstances, and if in doubt seek appropriate advice, before proceeding.