Many Australians find themselves with credit card debt. There are many reasons why you might not have made all your repayments, but not attempting to find a solution can lead to the situation becoming even worse.

Read on to find out all you need to know about credit card debt in Australia, what happens if you don’t pay, and how to get on top of credit card debt.

Average credit card debt in Australia

There are well over 13 million credit cards in Australia, and many of those card holders are in some kind of debt. In addition, credit cards have an average of $1378 of balance accruing debt. So if you find yourself with current or growing credit card debt, you certainly aren’t alone. The good news is since the start of the pandemic, Australians have managed to pay off over $4 billion dollars in debt. So there is no need to despair.

Defaulting on your credit card

Often when your bank contacts you about late payments, it will be through a default notice. This is a warning letter. When your bank has informed you of overdue payments, it is important to read it very carefully. Banks are generally very open about helping you find solutions for your situation, and clarifying all of your options can be extremely helpful. You can contact the providers of any credit card provider you have overdue payments with if you need to clarify anything.

If you have an overdue payment of $150 for 6 months on your credit card, it can now be classified as being in default. At this point, the bank has the option to pass your debt on to a debt collecting agency. But banks approach these things in different ways, so staying in contact with them is highly advisable.

If you have not met the conditions of your default notice, a bank may issue you with something called a Statement of Claim. This is an application to the court setting out how much the bank claims you owe. If issued with a Statement of Claim, you should seek legal advice. But you can still talk to your bank about the situation.

How unpaid debt affects your credit rating

Failing to make your payments on your credit card can negatively impact your credit score, so it is important to get a handle on the situation.

Credit reports now include your credit card records for the last two years, though a default will remain on your report for five years.  This can make securing loans in the future difficult. Whilst this default cannot be removed from your report, if you are able to make the repayments, this fact will be added to the report. So it is still important to repay debts, even when you have defaulted.

If you fail to make a payment in the first 14 days after the due date, this will be listed on your credit report. It will not be listed if you pay within the 14 day period.

During the first 60 days of you being behind on a payment, your provider will send out two different overdue payment notices. On the second notice, they will inform you of their intent to disclose the information to a credit reporting body should you fail to make the payment.

If your provider has been unable to contact you for six months after a failed repayment, you can find yourself with a serious credit infringement, which stays on your credit report for seven years.

Can I go to jail for not paying my credit card debt?

No. Unpaid credit card debt is a civil court case in Australia, not a criminal case, so you are not at risk of going to jail.

What if you can’t afford to pay?

If you can’t afford to pay your overdue credit cards, get in contact with your credit card company, explain your circumstances, and work with them to come up with an alternative payment plan. Some providers will be willing to negotiate an extension on your due date. If this is still going to be too difficult to pay due to financial hardship, you can suggest a hardship variation, in which you can request a change to the terms of your contract. This can include things like a freeze on your card, a pause of payments, or a payment plan.

It is worth keeping in mind that you miss out on any free from interest-free days if you haven’t made your payments, and many credit card issuers will remove reward points.

How to stay on top of credit card debt

Choose a card with low interest rates

Selecting a credit card with a low interest rate can always be an effective strategy. This way, you are more likely to find yourself simply paying off the debt you have incurred, and not as much the interest on that debt.

Choose providers with low (or no) late fees

Ideally, you will be on top of your payments, and won’t have to worry about late fees. Nonetheless, certain providers don’t charge late fees, or charge comparably low late fees. Comparing different credit card rates before committing to one gives you the opportunity to get a deal best suited to you.

Take advantage of balance transfers

Some banks have promotional periods for new accounts that don’t charge any interest. However, be wary of this method. Many Australians don’t cancel their old card, or continue using it and accrue more debt. Also, often the interest rate is very high after the promotional period, so you want to be well on top of your payments before that period expires.

Pay more than you have to

Whilst it isn’t always possible, when you have the opportunity, making higher repayments than required can be a great way of getting on top of debt before it becomes a problem. If you happen to have some spare money, designating it to a repayment could help you down the track if your financial situation becomes more difficult.

Schedule payment reminders

Our lives are very busy, and credit card repayments are rarely on the forefront of our minds. It can be easy to fall behind just because you have lost track of when repayments are required. Setting up some kind of reminder can be a great strategy, especially if you don’t have the strongest memory.

Use other payment methods

It might sound obvious, but you can’t accrue debt on your credit card when you don’t use it. When making a purchase, you don’t always have to use your credit card. If you have the opportunity, using a different payment method can help you prevent your debt from growing.

How to dispute your credit card debt

You do have the option to dispute a decision made by your provider, but you should always seek legal advice. If you feel as though they have made an unfair decision, you can request they review it. Alternatively, you can seek out an independent body to help find a resolution, such as ASIC.

Seek advice on your credit card debt

If you are struggling with credit card debt, seeking advice is very important. Financial advisors can help you find the best solution for this difficult situation.

You can get in touch with Debt Negotiators via our Contact Us page, or speak to us today by calling 1300 351 008.