If you've just signed up for a credit card, loan or even an interest-free deal on the latest flat-screen TV, you'll likely have been introduced to the concept of monthly payments. While these instalments might not seem like such a big deal, credit can turn into a true beast of burden should you begin to fall behind.
However, it's important to remember that credit doesn't have to be a daunting prospect - with the proper approach and management, it can be a useful tool in accessing goods and services whilst at the same time helping to build a good credit history.
Why is it important to stay on top of my credit repayments?
The sooner you pay off your loan, the sooner you can rid yourself of debt. Monthly repayments are meant to be a steady flow of money towards your outstanding credit, rather than a way to put off paying your debt as long as you can.
In addition, by staying on track to pay off your loan as soon as possible, the Australian Securities and Investments Commission (ASIC) advises that you will not only save yourself from unpleasant hikes in interest payments, you'll also lift an metaphorical weight off your shoulders1.
ASIC's Money Smart estimates that the national credit card debt in 2015 has surpassed $35 billion. With each person owing an average of over $4,7002, it's safe to say that a number of Australian borrowers should make timely payments a priority.
What happens if I fall behind in my payments?
In summation, when you fall behind on repayments, you are likely to end up owing even more money. By missing a repayment on your loan, you'll add on up the amount of interest you owe, meaning that you could soon find yourself owing interest on top of your interest.
Additionally, negative repayment behaviour such as missed payments, or in the worst case scenario, defaulting on your loan, can be recorded in your personal credit file. As potential credit providers can reference your file when you make an application for credit, it's important that you keep an eye on how your credit behaviour is reflected in this report.
How can I stay on top of things?
One of the safest strategies is to schedule direct debit payments each month so that you don't leave things to chance, in case you forget to make your repayments on the due date.
You can request a copy of your credit history through My Credit File today online, as well as signing up to My Credit Alert to monitor certain changes that occur throughout the year.
1ASIC, Making repayments. Accessed July, 2015.
2ASIC, Credit card debt clock. Accessed July, 2015.