Our credit card debt would pay off one quarter of the country’s mortgages, writes Campbell Korff, who warns of the serious repercussions of too much debt.
This Christmas I’m declaring a crusade against the credit card. I’ve had enough. Together with gambling, they’re a financial cancer eroding our national wealth. According to ASIC, we all owe the banks and other credit card issuers a total of around $31 billion. No, I’m not kidding.
Regular readers will recall my, now somewhat prescient, article in May 2015 on the Australian banks and the increasing pressures on their business model of borrowing short-term funds and lending (mostly home loans) for the long term. As I predicted, those pressures have negatively impacted their share price.
Well, no such pressures exist for credit cards. Despite record low interest rates, credit card rates have remained incredibly high. According to the RBA, the average cost of funds (interest rate at which they borrow) for the major banks is approximately 2.3%. While the average credit card rate is around 19%. That’s a profit margin of over 700%!
Yes, I know, there are 55 day interest free cards and others that give people the ability to better manage their cashflows, as long as they pay off the balance within 55days. Well, here’s the thing: the banks don’t issue these cards out of the kindness of their hearts. They issue them knowing that nearly all of us will regularly miss the interest free deadline and pay the ruinous interest and fees.
Canstar estimates that in the last four years we all paid a total of $35billion in credit card interest. That’s enough to pay off a quarter of the nation’s mortgages. What’s most frustrating about these statistics is that they are totally avoidable. Thanks to EFTPOS, debit cards and pre-paid travel cards, there is absolutely no need whatsoever to own a credit card. That’s right. No need whatsoever.
Many will argue that they need them to manage their cashflows each month. I can show you a far more effective tool that doesn’t cost you thousands of dollars each year: it’s called a budget and savings plan. All it takes is a little will power and patience and you will start growing your wealth, instead of destroying it.
If you don’t feel you can do this on your own, then drop me an email and I will show how to get off the credit card drug in months. No fee. No obligation. It will just make me feel good that my crusade has cancelled one credit card.
So go get the scissors out and start cutting up those cards before the financial cancer does any more damage to your wealth.
