Credit card debt must be cleared before anything else, John Rolfe says

AUSSIES are way ahead on mortgage repayments, data has shown, so why are we lagging behind on credit card debt?

THE Reserve Bank of Australia says that collectively, Aussies are two and a half years ahead on their mortgage repayments by paying several hundred billion dollars extra into offset and redraw facilities.

And don’t get me wrong, that’s great. People are saving 3.6 to 5 per cent in interest.

Yet, in aggregate, we are paying interest on $33 billion of credit card debt, at interest rates of 8 to 24 per cent.

How much of that $33 billion is owed by people who are in front on their mortgage repayments?

If you are ahead on the home loan but carrying a credit card balance from month to month then you are making a costly mistake.

Let’s say you are carrying $3000 from statement to statement at 18 per cent. Over a year that will cost you about $540. If you’ve got a competitive home loan rate, then having that $3000 sitting on the mortgage will have saved you $120.

That doesn’t make very much financial sense.

I can’t think of a good reason to carry credit card debt from month to month if you can avoid it.

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So make sure you have cleared what you owe on your credit card, if you can. It’s more important — and financially sound — than getting further ahead on the mortgage.

Speak to the bank and find out how far in front you are and the process for dipping into that to clear owings on your plastic.

Originally published as Credit card debt must be cleared before anything else, John Rolfe says