The Australian Financial Security Authority’s personal insolvency report for 2013-14 reveals that the second most common cause for insolvency, as listed by debtors, was excessive use of credit. A total of 6,999 debtors across the nation became insolvent during this time due to not being able to meet their credit card and personal loan repayments.
With over half a million Australians carrying, on average, more than $5,000 in credit card debt – why then do credit cards remain popular?
Despite their potential for concern, having a credit card can be beneficial to your financial wellbeing. While they do carry a significant risk when paired with irresponsible use, closely monitored credit card use is an effective way to build a strong credit history. This will in turn create benefits in the future. For example, a high credit score may mean paying less on insurance products. It could also mean paying an interest rate several points lower on mortgage loans than someone with a poor credit history. Basically, the better your score, the less you may have to pay in the long run.
Other benefits of credit cards include having instant access to funds in cases of emergency; receiving rewards when using them, such as cash back or frequent flyer points; and having a detailed and complete monthly purchase summary, which eliminates the effort of recording every purchase into your budget as you would when paying in cash.
However, improper or haphazard use of credit cards will have the opposite effect. It can lead to a large accumulation of unmanageable debt and have disastrous consequences for future financial opportunities. It can also place your assets at risk of being collected and sold, as a credit card provider can potentially petition to have you made bankrupt if you are unable to make your repayments.
If you are struggling to pay off your debts on time, you need to take action now and carefully consider your debt-management options. Debt Free Australia is a team of insolvency experts who can assist you to recover from your unmanageable debt problems. We can help you decide whether applying for bankruptcy is the best solution for you, or whether you could consider an alternative arrangement such as a Debt Agreement or a Personal Insolvency Agreement. Call us today on 1800 462 767 or email us at for more information about our services.