Handling credit cards debts

8 October 2009

There are many ways to accumulate debt with personal credit cards, home loans, HECS debt and car loans all being part of many people's financial lives. Figures from the Reserve Bank of Australia and major banks have shown that consumers are increasingly hesitant when it comes to using their credit cards, due to the issue of interest rates and making repayments.

In fact, from June 2009 to July 2009 Australians repaid a massive $283 million of their credit cards debt in a bid to avoid late charges and fees for heavy spending in the previous years. Furthermore, debit cards popularity has skyrocket with Visa and MasterCard debit cards now taking up 35.8 per cent of all card payments, a growth rate double that of credit cards and charge accounts.

Yet say you have a credit card debt, or if you have a massive credit card debt? What if you have several debts and just cannot get ahead of the interest rates? Well there are measures that anyone can take to help handle and manage their debt, even pay it off faster.

Kinds of Debt

Before working out a way to clear yourself of debt, you need to find a way to understand the exact debt you have, attached interest rates and all the other necessary conditions.

For starters, most people have two sorts of debt: credit cards and mortgages. Car loans are also highly popular but they operate on much the same basis as home loans so will simply combine the two. When it comes to loans there are variable or fixed interest rates to consider, the life of the loan and repayment structure. All these make this quite complicated, so if there is one debt you should try to eliminate first it should be your credit cards debt.

Credit cards need to have monthly repayments to avoid fees, now, you can choose to simply repayment the minimum amount, but this can result in your paying off what was once a small amount into a massive amount of interest rates. However, by increasing the monthly repayments to a higher amount (that you can still afford of course) you will find that you have repaid the credit cards debt off far quicker and with minimal additional charges and fees.

Consolidating Debt

Of course, if you do have multiple debts all requiring fairly high monthly repayments, one popular option is to consolidate your various debts into one debt, creating one repayment per month and one set of interest rates. Now this may not sound like a big deal, but by consolidating into one debt and eliminating all other additional fees and interest rates you will find that you can possibly save a significant amount every month that would normally be lost on such charges.

Perhaps the most popular options for consolidation are the personal loan. Just like all loans available on the market, personal loans are available as a choice between unsecured or secured.

As a side note:

Secured loans are those that require collateral by the borrower in exchange of the loan amount, meaning the lender can retain these assets if the loan is defaulted
Unsecured loans are not offered with any collateral requirements but, due to the higher risks for the lender, will have higher interest rates attached.

Dealing with Interest Rates

When it comes to interest rates, the obvious choice is to switch from a high interest rate credit card to another through a balance transfer. There is great advice available when it comes to balance transfers and their benefits and drawbacks, this can help you make a decision as to which one to go for with their literally being hundreds of cards on the Australian credit cards market that you can choose to transfer too.

Many people are now shifting their debt as they repay it between various different balance transfers cards most that offer six to twelve months on a very low balance transfer rate. This is a great way to eliminate paying hefty interest rates, but it is important that you make the repayments as quickly as possible to benefit from these low rates. What's more, you want to be careful not to shift and transfer your debt too often as this will appear on your credit file and can reflect badly on you if there are too many balance transfers and not much repayment occurring, especially if it continues over more than one year.

CreditCards.com.au is an Australian owned information provider on Australian credit card products. Please use our Compare Credit Cards table to find the right credit card for your financial needs.

We cover a wide range of credit card services provided by credit cards companies through the banking and financial sector.

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