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Escaping the credit card debt trap

In this article we look at credit card debt, what it means for Australians’ financial futures, and how VicSuper can help you to better plan and budget your money, and set your financial goals.

According to research from comparison site Finder more and more Australians are getting credit cards. In fact, there were 16,694,597 credit cards in Australia in 2017 owned by 12.8 million Aussies, with an average spend of $1,573 per month and an average credit card balance of $3,170.

The research also found that 16.6% of people get their first credit card when they’re 18, which is the minimum legal age you can sign up for a credit card in your own name. Another 6.3% wait until they’re 19. But by age 25, 55% people own a credit card.

What’s the problem?

Speaking to NewsCorp, a Finder spokesperson said that, “As the cost of living goes up, a significant number of young Australians are turning to plastic to cover everyday expenses…some young borrowers may not have financial support from their family and credit may be their only option.”

In other words, it’s not just youngsters wanting to have cool stuff and pay for it later that’s the problem, although that’s certainly a contributing factor. Rather, it’s the fact that things like rent, bills and groceries are more expensive than ever – and young peoples’ wages are growing especially slowly. According to the ABS statistics, the rate of unemployment and underemployment (not getting enough hours) is especially high amongst young people. And that’s not just because young people are more likely to be going to school, TAFE or university. It’s because people who aren’t looking for a job are classified as ‘not in the labour force’ rather than being classed as unemployed.

It’s possible that some younger people are resorting to using their credit card to make ends meet on those weeks when their income isn’t high enough. The problem comes when they can’t pay the balance off at the end of the month, and interest starts to build up – or if their circumstances change and they can’t make payments at all.

How to escape credit card debt

If you (or a young adult you know) have a major credit card problem, be aware that it’s not just a temporary thing that will go away when the balance is paid off. The Finder spokesperson also pointed out that many young people aren’t aware of how their early credit card abuse or repayment troubles have affected them. At least not until they go to apply for a car loan, or even their first mortgage, and end up getting rejected.

That’s why it’s particularly important to get a crazy credit card bill under control as soon as possible.

The first step is to look at getting the spending level under control. Take a look at the credit card statement and see if there are any expenses which would be easy to cut, or which would be better paid through direct debit/alternative payment arrangements. Find even more savings by keeping a spending diary for a week so you’re conscious of the little extras that see you splashing cash on a regular basis. If you’re only putting essentials on your card, it might be time to look at a more dramatic lifestyle change. And remember, most utilities companies will allow you to negotiate a payment plan if you’re having financial troubles, so you don’t need to put the whole bill on your credit card at once.

The second step could be to pay your debt off over and above the monthly interest amount. This might involve allocating a set amount each month and paying it off before any discretionary spending (spending on non-essentials) such as overseas trips, a new TV, fine dining, etc.

The third step could be (depending on your circumstances) to get some ‘breathing room’ in your finances by consolidating your multiple credit card debts and/or moving the balance to a card with a long interest-free period. That way, while you’re getting back on your feet, you won’t be battling against compound interest.

Want quick and simple financial advice online? Try the VicSuper Beeline app. We created Beeline as an online tool for VicSuper members to set goals and budget, review their super contributions, and much more. Login to Beeline

 

At VicSuper, your super is in good hands. Being a profit to member fund, members are at the centre of everything we do. And we’re big enough (approximately $25 billion in funds under management) to deliver real value but not too big that you don’t get the service you need.

We deliver great value to our members in a number of important ways:

  • As a profit-to-member fund, we keep fees as low as possible and we don’t pay commissions to financial planners.
  • Solid long-term investment returns – we aim to deliver competitive returns for our members.
  • Award-winning value – we’ve been awarded Constar’s 5-Star Rating* for Outstanding Value Superannuation in 2020, one of only six super funds across Australia to receive this rating. We’ve also received SuperRatings’ Platinum** rating – their highest rating – seven years in a row (2013-2020), confirming that VicSuper continues to be one of the “best value for money funds” in Australia.
  • High quality services – we were awarded Best Fund: Integrity by Chant West (2019)* for offering lower fees and premiums, while continuing to provide the benefits and services members really need, like quality investment and insurance, and member services and advice.

Important information
This is general information only and does not take into account your specific objectives, financial situation or needs. We recommend you seek professional advice for your own circumstances. Contact us to make an appointment to see one of our representatives. When members receive advice, they receive it under our financial planning business Aware Financial Services Australia Limited’s own AFS licence. Aware Financial Services Australia Limited ABN 86 003 742 AFSL 238430 is wholly owned by Aware Super Pty Ltd as trustee of the fund. You should read their Financial Services Guide before making a decision. Issued by Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340, the trustee of the Aware Super ABN 53 226 460 365.

* The Canstar 5-Star Rating for Outstanding Value Superannuation was awarded in March, 2020.
** SuperRatings is an independent superannuation ratings and research company. Platinum is SuperRating’s highest rating. SuperRatings and Chant West are independent organisations. See superratings.com.au and chantwest.com.au for ratings, criteria and methodologies.

1July 2018 we lowered the percentage component of the administration fee in our VicSuper FutureSaver product from 0.28% p.a. to 0.19% p.a. and from 0.28% to 0.22% in our VicSuper Flexible Income product

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