How much is your credit card debt costing you?
About the author:
- Author name:
- By Simon Tarrant
- Job title:
- Date posted:
- 30 July 2020, 4:15 PM
According to the RBA’s most recent payments data, in May 2020 there were over 13 million personal credit cards on issue in Australia with a balance in excess of $23.7 billion accruing interest.
With credit card interest rates often exceeding 20% do you know how much your credit card may be costing you?
The benefit of increasing your repayments
A credit card balance of $10,000 with an interest rate of 18% p.a will take approximately 43 years and 11 months to repay and cost you $26,332 in interest if only the minimum monthly payment of 2% (min $20) is made.
By increasing your repayments to $500/month your debt will be repaid in just 2 years!
Consolidating a good habit
Once your debt has been repaid, if you were to continue saving the $500/month you were making in repayments into a diversified portfolio returning 5% p.a (net of fees & charges), in 8 years time you would have portfolio worth $58,870.
This means in the less than quarter of the time it would have taken you to repay your credit card using the minimum repayment you can be well on your way to achieving your financial goals whether that is saving for a house deposit or implementing your wealth creation strategy.
The below graph illustrates how a higher repayment can benefit you over a 10-year period.
* Assumes 18% p.a interest, 2% minimum monthly repayment (min $20), Investment return of 5% net of any fees & charges.
Find out more
Simon is a Private Client Adviser at Morgans Gosford. Simon is passionate about creating quality financial strategies that are tailored and customised to an investor’s individual lifestyle, financial goals and risk profile.
If you would like to discuss your opportunities to reduce your debt and build wealth, please contact Simon at email@example.com or via (02) 4325 0884.
General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.