If you had a bit of a splurge over the festive season, thinking you'd worry about how much money you spent in January, well, now it's time to worry. Let's face it, we've all been caught up before in the Christmas spending frenzy; whether it be draining the bank account, whacking purchases on the credit card, or taking up one of the plethora of "interest free" deals offered by just about every major retailer stocking big ticket items.
According to figures released in December, credit continues to rise - albeit a little more slowly - despite the interest rate rises we had last year. We now owe about $37 billion dollars on 13 million credit cards, so around $2,800 for each card.
Let's do some calculations based on a standard card with an annual interest rate of 16.5 per cent. If the minimum monthly repayment on that figure 2 per cent, you'll be up for $56 for the first month, reducing slightly until the whole thing's paid off. That doesn't sound too bad does it? OK, keep paying that $2,800 off at the minimum repayment level and it'll take you just over 30 (yes, that's THIRTY) years to pay off and you'll contribute $5,430 in interest to your credit card provider.
Let's say you think you could manage twice that; $112 a month until the whole thing's paid off. It will take you 2 years and 8 months to clear your debt with more than $650 paid in interest.
Anyone can easily work out these numbers by using the calculator on the ASIC* website, it's often a great little dose of reality at a time of year that's all about excess. If you've already gone overboard at the shops, or the post-Christmas sales are beckoning you, at least now take 15 minutes to read the terms and conditions of your credit card. Be aware of how interest is charged and under what circumstances you'll get the benefits of an interest free period. Obviously, check what sort of interest rate you're being charged. If you've got store card or a card with all the bells and whistles you're probably being charged a higher rate, and a rate that will cost you more than you'll gain in benefits from offerings like frequent flyer points.
Like dieting, budgeting isn't really something that's fun to think about at this time of year, but a little bit of time spent organising your finances now can hopefully minimise the damage done over Christmas.
* You can download the credit card calculator at www.asic.gov.au/fido