AUCKLAND (CU)_Last month, the Reserve Bank of New Zealand (RBNZ), published a report on credit card spending across the island nation, setting off alarm bells on how much Kiwis pay in credit card interest each year. According to the central bank’s figures, New Zealanders are spending round $600 million a year as credit card interest, which amounts to a staggering $1.6 million a day. This is based on an average interest rate of around 18 per cent a year, which is rather disappointing at a time when banks offer just a 0.05 per cent return for so called “rapid” or “fast” savings accounts.
Recently, New Zealand consumer website, MoneyHub, has been warning consumers regarding the dangers of credit cards, noting that while the service is perfectly suitable for those who regularly pay off the balances, most people fail to do so.
“All too often, I hear of sad stories, people with $5000 balances paying 25.99 per cent and unable to clear the debt, even though they make regular repayments. Add in people with $10,000 credit card debts who see no way out, and people on long-term finance and the sum is a lot of costly debt,” Christopher Walsh, the founder of the website which focuses on money saving via in-depth journalistic research, said.
He noted that while this form of misery can be avoided by good financial management, one of the main reasons people get into trouble is become they have a credit card when they probably shouldn’t.
Accordingly, Walsh set out a few steps which would help consumers to get out of big credit card debts. Firstly, he advises them to look at the possibility of transferring the outstanding balance to another card, often one with 0 per cent for six to 24 months. Thereafter, the consumer should commit himself to pay off the balance routinely. He also recommended credit card holders to reduce the credit limit on their card so that they avoid “tempting fate”. “[…] there’s no point in having $5000 or $10,000 limits if you know you couldn’t pay it off,” he noted.
According to the financial analyst, another way to divert your income from banks to your pocket is to avoid long-term finance deals. “The problem is if you don’t make the repayments during the free period (which are loudly promoted), you’re stuck with a hefty bill at the end. Instead, be boring – buy second hand, use Trade Me or Facebook Marketplace,” he advised.
Another way to avoid getting a credit card for sudden expenses is by starting a savings account. Walsh pointed out that if a consumer is able to set aside a reasonable $30 a week into a dedicated savings account, it provides him with a nest egg to tackle such expenses.