Paul Clitheroe
Paul Clitheroe

Holiday debt lingers on

THE tinsel may be packed away but four out of ten Australians are still feeling the pain of holiday season spending.

February is typically one of the most expensive months for credit card holders, as card balances hit their annual peaks following the summer holiday season. A recent survey by comparison site Mozo confirms that 36% of Australians continue to face an inflated credit card balance, or lower personal savings, as a result of their festive season generosity.

The average credit card debt currently stands at $4,697 per Australian cardholder, meaning many people are having their personal budgets weighed down by monthly card repayments. And it's no secret that while home loan interest rates are very low, the rates charged on most credit cards remain persistently high.

That makes it important to get serious about tackling credit card debt.

If your budget allows it, paying a bit extra into your card each month will help clear the debt sooner. If you have a variable rate home loan, the savings delivered by the recent rate cuts could be a source of extra cash for additional card repayments. 

Another option is to take advantage of a balance transfer offer. According to Mozo, there are around 100 zero per cent balance transfer deals on the market right now and many are very competitive. These can offer a window of opportunity to get ahead with card debt, though be sure to read the fine print. Check the rate you will pay on any new purchases as well as the 'revert' rate that applies to any remaining balance transferred once the low rate period expires.

Alternatively, a personal loan can be used to clear the debt. It may sound like a drastic step but a personal loan can be particularly helpful if your card debt is really getting the better of you, or if you can't see yourself clearing a good chunk of the debt within the low or zero interest period offered by a balance transfer deal.

As well as providing a clear date for when the loan is paid off, a personal loan could see you save money on card interest charges. The non-banks are especially strong in the personal loan market, and with some shopping around it's possible to find unsecured loans costing less than 9.0%, which compares favourably to the 15% or even 20% interest you're likely to pay on a credit card.

If you opt for a balance transfer or personal loan, be sure to ditch the old card by letting the card issuer know you want to cancel that card. This means you won't pay annual fees on a card you're no longer using, and more importantly, it removes the temptation to load up the newly cleared card with fresh purchases.

Follow up these steps by aiming to keep your card debt under control. A simple strategy is to leave your credit card at home when heading out to the shops. Stick to using a debit card or the cash in your wallet - it makes it much harder to overspend. Or ask your card issuer to reduce the credit limit on your card and set it aside so that the card is reserved exclusively for emergencies.

Take a look at my book Free Yourself From Debt for more ideas on managing card debt.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

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