HOME > BLOG > Budgeting and Saving > Are you in control of your credit cards or are they controlling you?

Credit cards are a popular choice as they are a convenient way of paying for things. But, if it means you are spending more than you can pay off at the end of the month it can leave you in financial strife.

One of the big problems with credit cards is that if card holders only make the minimum repayment each month, the time to repay the debt balloons to months if not years, amassing a significant amount in interest over that time. According to a new study by finder.com.au, there are a number of people who do not pay off their credit card bill in full each month and also people who hide their card expenditure from their spouses.            

Out of those cardholders who hide their credit card spending (15% of cardholders), one in three don’t pay off their bill each month. Almost all of these cardholders (96 percent) make at least one unplanned purchase every month, with shopping sprees the most common unplanned purchases.

Michelle Hutchison, Money Expert at creditcardfinder.com.au said that Australians need to start paying attention to their credit card spending.

“It’s time to stop feeling ashamed about your credit card spending. The easiest way to do this is to review your budget by looking at how much money you have coming in and what expenses you have going out. If you’re upfront about your budget and try to stick to it, there’s no need to hide your spending. You’ll feel better about it and be in control of your money and your future,” said Mrs Hutchison.

Unlike home loans, credit card interest rates have not reduced in line with RBA interest rate decreases. This means the longer you carry over your balance, the more interest you will have to pay. If you are struggling to get your debts under control, it may be time to consider consolidating then. Debt consolidation is when you combine all of your debt (credit cards, personal loans, car loans etc) so that you have just one repayment each month, making your debt a lot easier to manage.

Consolidating your debt into your home loan is a common option for mortgage holder for a number of reasons. Firstly, the home loan interest rate is a lot lower. If you are reducing the interest rate from 19% on a credit card to just 4.5% in your home loan then the interest you pay will be a lot less. Secondly, home loans have a longer loan term so your minimum repayments will be a lot less. Home loans also can be more flexible with more money saving features available to help repay the debt sooner.

It is definitely not a “silver bullet” solution. At the end of the day the debt needs to be paid off. Consolidating it into your home loan may ease the pressure but you will end up paying even more in interest if you just pay the minimum and spread the debt over the term of the home loan which could be 15 to 30 years.

If you choose to increase your home loan to consolidate debt here are a few handy hints.

• Review your home loan to ensure it is the best option for you. To increase your home loan with your current lender to consolidate debt, it will possibly need to be re-assessed. If you are going to go to this trouble of providing updated details and payslips etc, it may be worth shopping around for a home loan that has a lower rate and more money saving features.

• Keep focused on the debt consolidation amount and get it paid off. Some home loans have handy features like loan splits or sub accounts. You can use these to keep it separate from what you owe on your home and ensure it is paid off as quickly as possible.

• Don’t fall into the same trap again. Once the debts are paid out, if you are at risk of running up a large credit card bill again, just cut it up and start using cash or a debit card instead. If you still need a credit card, then keep track of your expenditure and focus on paying the full balance off each month.

• Once the extra amount is paid off your home loan, ask for your home loan to be reduced so that you don’t have access to these funds as redraw. This takes away this as a temptation to use these funds for everyday expenses.

If you are interested in refinancing to consolidate your debts, get in contact with State Custodians. We have a range of award winning home loan options available that come with handy features like the ability to split your loan into sub accounts as described above, 100% offset account and free redraw. You can speak to our Lending Specialists about your options. Call now on 13 72 62 or enter your details here for us to contact you.