How Much Do You Spend On Interest?

It is easy to fall into a routine with spending money and paying bills and credit card payments are no different. But just how much do you really spend on interest?

According to the latest Consumer Credit Expectations Survey from credit reporting agency Dun & Bradstreet, it could be quite a bit.

Data from this report, released in April, indicates one third of Australians expect to face difficulties meeting their credit commitments between April and June. What’s more, nearly 40% of people anticipate having to use their credit card to cover otherwise unaffordable expenses.

Dun & Bradstreet CEO Christine Christian believes the latest data points to the financial pressure many households are experiencing as a result of debt levels remaining at an historically high level.

“This survey shows that many Australians are using credit in ways that may eventually harm them and expected interest rate rises later in the year may be the trigger that causes distress for many households,” she said.

But instead of letting stress get the better of this situation, being proactive about credit card interest rates and debt can help keep things under control.

Credit Card Interest Rate Changes And Debt

When there is a debt on your credit card, the interest rate is probably the most important feature.

For instance, someone with a $10,000 debt on their credit card and an interest rate of 22% p.a. will be paying around $183 in interest per month. To pay off the debt in two years, they would have to make repayments of $530 per month, and still the total interest paid would end up over $2000.

Time and money could be saved if this debt was dealt with on a lower rate card, like the Aussie MasterCard, which has a balance transfer rate of 2.99% p.a. for the first 12 months.

For the introductory period the interest each month would be $24.92, which means more money can be spent on paying off the debt than on meeting interest repayments alone. Just remember how long the introductory offer will last when considering a balance transfer to make sure you get the most out of it.

As well as having a big impact on existing debt, a change in interest rates can also make it harder to stay out of debt for people who only occasionally miss repayments.

If the scenario above were reversed, it would be even harder to make planned repayments while adjusting to an interest repayment that is almost $160 more per month.

Fortunately interest rates rarely rise more than 10% p.a. in one go, however being aware of the rate after an introductory period is incredibly important.

Paying attention to card interest rates and your planned repayments can cut the costs on what you spend on interest. Switching to a low interest card can help make debt a thing of the past, and keep it that way for the long term.