Most Aussies use their credit cards unwisely, according to a recent survey of 1,000 credit card holders by Members Equity Bank.
70% of people admitted to at least 3 out of 7 common bad habits that can lead to expensive charges, higher interest rates and spiralling credit card debt. For Millennials aged 25 to 39, the figure was even higher at 85%.
If you're worried that you might not be using your credit card effectively, finding out what these bad habits are could help you to improve your behaviour and escape credit card debt faster.
1. Not paying off your balance each month
27% of people said they don't pay off their credit balance in full at the end of the month. This is what credit card companies rely on, as they can charge you a higher interest rate. If you rely on your credit card, making sure you pay back what you borrowed on time will help you avoid penalties.
2. Only paying the minimum
32% of Aussies said they only meet the minimum repayment on their credit cards. While this can sometimes be necessary if you're struggling, making minimum payments for the long term will mean paying much more in interest and being stuck with debt for longer. Find out how much you can afford to pay back each month using Debt Fix's free debt calculators.
3. Using credit cards for long-term purchases
31% of respondents said they use credit cards for purchases that take 6 months or longer to pay off. Credit cards are best used as a short-term measure, not for long-term commitments that will trap you in debt for longer and could end up costing you more than if you'd paid by other means.
4. Using credit cards at an ATM
31% of people said they withdraw cash from ATMs using their credit card. Unlike a debit card, credit card cash withdrawals are treated as a cash advance which typically carries a high interest rate. If you need to pay with your credit card, look for an EFTPOS terminal rather than using cash.
5. Keeping your credit card active after a balance transfer
19% of Australians keep their old credit card active after accepting a balance transfer offer. Balance transfers can be a useful way to pay off existing credit card debt in a limited period of time without adding more interest, but if you continue to use the credit card after, you could fall back into bad habits. Some cards also charge account fees while they're in use.
6. Not using savings to pay off credit card debt
42% of survey respondents said they have savings at the same time as credit card debt. While it's always a good idea to have savings, you should check whether the interest you're earning on your savings is greater than the interest racking up on your credit card debt. Most of the time, paying off your credit card as soon as possible is advantageous.
7. Not setting up automatic transfers
75% of Aussies don't have automatic payments set up for their credit cards. This can help to make sure your balance is paid off in full every month without you missing the deadline and incurring fees and interest.
How can I get out of debt?
If you're struggling to pay off credit card debt, talking to a financial advisor will give you a clearer idea of what your options are. For a confidential, no-obligation consultation, call Debt Fix's experts today on 1300 332 834.