The below article outlines the impact of interest on credit card debt and utilises data from Australia. To learn more about finances check out Low Income Loans Australia, a personal finance site which helps low income earners with non-profit and government initiatives with regard to money matters.
According to a recent study, Australians are currently more the $35 billion dollars in debt with just their credit cards. Astonishingly, this amounts to more than $6 billion worth of interest payments each year. This makes it easy to see why the credit card industry is booming, but how is this interest affecting your wallet. While credit card debt is a major problem, almost all forms of debt incur interest payments that can significantly increase the amount of money you must repay for the loan.
The problem that millions of Australians face today is being stuck in this circle of debt that requires them to repay so much in interest fees that they can never pull themselves out. It can take some people 10 or 20 years, or more, to pay off a simple credit card bill, and if they keep using the credit card, it will result in a lifetime of debt. Before using any more credit cards or incurring any more debt, it is important that you understand just how these interest fees are killing your financial stability.
The Credit Card Debt Cycle
For many people, credit cards sound like the perfect solution. The “Buy now, Pay later” method of making purchases helps people buy things they otherwise could not afford. The problem is that these credit cards tack on interest for each purchase you make. On top of that, they only require you to make a small payment each month. This too, may sound like a great option, at first, because these payments fit well within your budget. However, each month more interest is being incurred on the balance that you have not paid for yet. Over time, this can amount to a significant amount of interest for just a small purchase.
In addition, credit cards have a few tricks they use to lure people into spending more and accruing more interest. First, they often raise people’s credit card limits without any notification. This gives you the ability to spend even more money and rack up more interest. These companies also have the ability to raise your interest rates whenever they want to. They are notorious for offering great low rates to start with, and then slowly continue to raise these rates over time, costing you more money.
Beware of Interest-Free Loans
Another common debt trap that many companies use is to offer no-interest loans for set period of time. These are very popular when purchasing goods like electronics, furniture, and even cars. This, too, sounds like a great plan, after all, you are able to purchase something you want and you will not even have to pay any interest.
The problem is that if you do not pay the item off within this timeframe, interest will be charge on the remaining amount, and typically, this is with a very high interest rate. Worse is the fact that many of these programs will set up a repayment plan that ensures you will not pay off the loan within the no-interest timeframe. In addition, this type of loan often comes with a credit card, which pulls you right back into the credit card trap.
Tips for Dealing with This Interest Trap
The most important thing is to make sure you read all the terms and condition of any credit card or loan you considering entering into. Unfortunately, these terms are written in a very confusing manner that can be hard to understand. Do not be afraid to ask the company questions or to seek advice from a professional financial counsellor before obtaining any new credit. This may help you avoid this interest trap.
If you already have a credit card, or even several credit cards, it is important that you pay more than the minimum payment amount each month. Otherwise, you will be paying a significant larger amount in interest. You also should only maintain one credit card, if any, and only use it for real emergencies. If you enter into a no-interest loan deal, be sure to set up your own payment plan that will guarantee you pay the loan off before they start charging interest.