Credit Cards: The More You Fail, The Worse It Gets

creditcarddebt A new study shows that Australians are surprisingly good at using credit cards intelligently -- but if you've had problems with credit card debt in the past, the chances are good that it's going to happen again.

The basic principle of not ending up with a mountain of credit card debt is well understood: pay off your debt in full each month so you're not paying excessive interest, and don't put anything on your card if you can't make that happen. And it seems that, despite endless gloom and doom over debt levels, most of us take that advice to heart.

The cutely-named HILDA Survey (it stands for Household Income and Labour Dynamics in Australia) asked 12,000 people about their spending habits and credit card usage, amongst a host of other things. Credit cards are pretty popular: 60% of adults have them, with a median credit limit of $5,000, and the figure rises for people with higher education or who are employed (the latter is no surprise, clearly).

The most interesting result from the survey was that we are doing our best to keep those balances down. Only 16% of those surveyed said they "never" or "rarely" paid off the balance on their cards.

Of course, that doesn't mean that the other 84% always manage to pay everything off. The average unpaid credit card balance in 2006 (analysing the data takes a while) was $3,699. But by HILDA's reckoning, that combination of factors means that just 4.5% of the population are likely to experience serious problems with credit card debt.

Predicting what might lead people to have problems is tricky, save for one clear but troubling figure: if you've got a history of credit card problems, it's much more likely that you're going to have problems again in the future. As HILDA deputy director Dr Roger Wilkins explained in a release announcing the results:

Of those in credit card difficulty in 2006, 29% had also been in difficulty back in 2002, compared with only 3 percent of other people.

Admittedly, that's cold comfort if you've already got a messy credit history -- but if you don't, it should be a powerful incentive to keep it that way.

Beyond paying off your balance in full each month, it's always worth keeping an eye on fees when choosing a credit card. And whatever approach you take to managing your credit card debt, make sure you minimise the risk of credit card fraud.

Lifehacker's weekly Loaded column looks at better ways to manage (and stop worrying about) your money.


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