Credit card debt is on the rise, reaching a 4-year high, according to RBA credit card statistics. The average credit card debt of $5,330, if left at the minimum payment rate of 18.61%, would cost an estimated $15,891 in interest charges and take almost 40 years to clear. This doesn't account for annual fees or additional purchases. However, making higher repayments, such as an extra $150 per month, can significantly reduce the debt. With this strategy, the debt can be cleared in just 4 years and 3 months, saving an estimated $13,596 in interest charges. Time taken to pay off the average credit card debt of $5,330 with different repayment strategies is outlined below:
Total interest charges Time taken to repay
Minimum repayments $15,891 39 years, 1 month
Higher repayments (extra $150 per month) $2,295 4 years, 3 months
Savings $13,596 34 years, 10 months
Canstar's spokesperson, Laine Gordon, highlights the concerning trend of rising credit card debt, noting that it has increased in eight out of 12 months over the past year. This suggests that many Australians are struggling with rising costs. Spending on credit cards dipped slightly in September after a record-high month before, but it's still up year-on-year, indicating reliance on credit. The RBA data reveals that Australians with credit card debt are facing average interest rates above 18%, making it challenging to reduce their debt.
To address this issue, Canstar recommends seeking low-interest cards from banks offering rates under 10%. Paying the minimum payment is discouraged as it can lead to long-term interest accumulation. Even small extra payments can make a significant difference, potentially saving thousands in interest and reducing debt clearance time by decades. For those feeling overwhelmed, the National Debt Helpline is available to provide support and guidance, offering a free service to connect individuals with financial counsellors.
