Spending money you don’t have has become a way of life for many Australians. However, recent studies have shown that credit card and personal loan debt are starting to outlive the holder.
Reliance on credit is already starting to get out of control and it is important for Australians to know why they should avoid credit cards and personal loans.
According to recent research by Mozo, credit card debt of a few thousand dollars with high interest rates will take over 100 years to pay off if only the standard repayments are being made.
It is possible to live without a credit card, however, it will require more planning and budgeting. However, it could also save you a lot of money. Take a look at some of the options below:
Have an emergency fund
Many people have to resort to using their credit card when an unexpected expense pops up. These expenses may include an illness or their car breaks down. Then, you are stuck paying off the debt for months and months.
An emergency fund can help protect you in these situations and even if you add just $20 a week, you can save up over a thousand dollars in a year.
Limit the number of credit cards
Having multiple credit cards does not only mean you will be spending a huge amount of money on interest, but it can also affect your ability to obtain new credit e.g. a home loan. When assessing a home loan application, a lender will use the credit card limit, not the amount owing, to determine your borrowing power. So, make an effort to cut down to one credit card, it could really save you a lot of money.
Earn interest instead of paying it
Credit cards and personal loans are notorious for having high interest rates and the majority of the minimum repayment amount covers the interest and only a small percentage of the amount owing. This is why so many people who only make minimum repayments are stuck with their credit card debts for years.
But imagine if instead of spending all of that money on interest, you could be earning it in a savings account. Once again, it comes back to creating a savings plan, especially if there is something you want to buy. By putting money in a high interest savings account, you could reach your goal quicker.
Use a debit card
A debit card acts just like a credit card, except you can only spend the money you have. This is a great option if you prefer to pay on card than with cash and you can also use it for online shopping.