The real costs of having credit card debt…
As a nation we spend more than we earn, the stats are actually pretty scary, especially when compared to those of my parents generation.
In the 70’s Aussies spent approximately 68c for every dollar they earnt. Wind the clock forward to recent times, and we’re spending almost $1.10 for every dollar we earn.
Living beyond our means
Basically that means we’re going backwards and using credit cards to live beyond our means.
So what does all this really mean? I want to talk through a couple of examples and focus on the actually cost of holding credit card debt.
Let’s start with a $5,000 debt. Depending on the interest rate of the credit card, this level of debt is probably costing around $900-$1000 a year in interest that’s being charged back to the card. $10,000 of debt?
That’ll be almost $2,000 in interest you’ll pay a year.
I’ve had several experiences with clients with substantial credit card debt, up to around $40,000 and in this instance, the interest is around $7,200.
That’s $140 a week going out, just to have that debt sitting there.
You can start to see how, the bigger your credit card debt, the less impact your repayments will be having as you’ll often end up only able to cover the interest and just a little of the actual balance.
Another important thing to note is what will happen if you pay only the minimum repayment listed on your monthly credit card bill.
I ran some numbers on this recently, and basically it’ll take just over 35 years to pay off the credit card in full if you only make the minimum repayment that the bank has listed on the bill. That’s crazy!
35 years, and it’ll end up costing you almost 4 times the original debt amount.
So the scenario I looked at was a $5,000 credit card debt, repaying only the minimum each month and at the end of 35 years the total that had been paid back to the bank was $18,450.
I think we all inherently know that credit card debt is not a good thing, but I wanted to give you a little food for thought about just how financially toxic it can be.
8 Week Money Makeover Program
If you’re someone who’s struggling with repaying debt like credit cards and personal loans, it’s worth checking out my 8 Week Money Makeover program which has a whole section of effectively repaying debt.
Like everything else in life, the decision to stop accumulating debt and start repaying it, is just that.
A simple decision that you have to make, no one can make it for you. There will be no magic solution.
Just a commitment to stop spending beyond your means, and to make your monthly repayments without fail.
Short term pain, long term gain,