Unexpected bills are burning a $52.44 billion hole in the Australian hip pocket, with most of us unable to afford surprise costs as they emerge, new research shows.
The study, undertaken by peer-to-peer lender SocietyOne, shows that when large emergency bills arise, 65 per cent of Australians are not fully covered by insurance or savings.
When it does happen, more than one in four of us reach straight for the credit card.
It’s perhaps not surprising, given Australians on average borrow almost twice what we earn, according to the Australian Bureau of Statistics (ABS).
“When it happens, and you need a loan, you should reflect on whether you’re getting the best deal and if a quick fix high interest credit card is the best option,” SocietyOne chief executive Mark Jones said.
“With one in five Australians facing unexpected costs having expenses worth more than $5,000, and a national credit card debt of $45 billion, there may be a better alternative to dealing with it than putting it on plastic,” he added.
Car expenses were by far the most common unexpected expense, hitting more than a third of Aussies, while travel costs and medical bills ranked as the second and third most common respectively.
If you find yourself having to deal with an unplanned and unwelcome bill, SocietyOne offers these three tips for dealing with it.
1. Break the credit card cycle
Instead of instinctively reaching for your credit card, consider whether there are better options at your fingertips.
With credit cards carrying interest rates anywhere between 11 and 20 per cent, there may be a lower cost credit alternative.
Remember however, that reaching into your savings, if possible, will always be the best response.
2. Pay more than the minimum
If you incur a new credit balance, or are still paying off an old one, reject the temptation to just make the bare minimum monthly repayments.
By doing so, you are extending the life of your debt, incurring greater interest payments and ultimately paying much more than the cost of the original bill.
3. Reassess your financial fitness
If you find that credit is your first port of call, take the opportunity to assess your financial situation.
Consolidate whatever debt you may have to reduce excess costs and, if you’re currently debt-free, ensure you have enough savings going forward to pay the next bill upfront.