How to kill credit card debt
Credit cards net a whopping $32,874,733,510 in national debt accruing interest over the 16,699,272 credit cards in use in Australia as of January 2017. If you are in possession of one of those 16+ million cards, you likely have debt you would want to pay off quickly.
According to ASIC’s consumer website, MoneySmart, the average credit card debt in Australia is $4420. For some that is a large, frightening total and repayment in full may seem unachievable, but it isn’t. Here’s some simple steps you can take to kill your credit card debt sooner and become debt free.
- Clear debts with the highest interest rate first
Spare cash after all bills have been paid? Any spare cash should be invested in repayments on your highest interest debt each month, while still meeting your minimum payment on other debts. Once this debt is cleared, go to the next highest interest charge. Each time a credit card is paid off, a little extra cash should be available each month to help whittle down the next debt, clearing them faster, reducing your interest costs and establishing healthy financial habits.
- Stop using your credit cards
For a quick and easy way to eliminate credit card debt (or to prevent it in the first place), simply don’t use them. Pay cash for everything and you will find spending automatically decreases. Some studies have shown consumers are more likely to pay more for single items on credit card than they would if they were paying for the same item with cash. When trying to pay off credit card debt, the cessation of card usage is imperative.
- Budgeting and organisation
Start budgeting. It’s not as hard as it sounds. Detail your earnings and expenditures. Are there areas when you can reduce spending and save money? Once you identify potential savings, more money becomes available to put towards killing your credit card debt. Simple ideas for monthly savings might be to refrain from eating out, taking a packed lunch to work, downgrading your Foxtel or switching it off, using the air conditioner less and banning any luxury purchases. A spreadsheet is a great way to organise your finances – detailing what credit cards you have and the amount of debt owing on each one + the applicable interest rates. Find the total amount of debt and make a game plan on how to prioritize paying it off.
- Shop for lower interest rates and balance transfer
Lower interest rates equal lower monthly payments and sometimes fees too. Simple right?
Sometimes promotional rates of 0% apply for a specific amount of time on balance transfers. This will buy more time for you to clear the debt. Be wary of fees incurred for balance transfer and also remember step 2, stop using your cards, otherwise you will just be delaying the inevitable and exacerbating the issue (debt).
- Consolidate debts
When credit cards debts pile up too high, consolidation may be the best option. This is done by borrowing money from a bank or private lender, to pay off all credit card balances at once, then focusing on the one larger debt as a whole.
While those little plastic credit cards can be a handy tool in establishing a credit rating that will allow for a future home loan or large purchase, the temptation to use for purchases you can’t afford is also great. Use your credit cards wisely and within your personal means.
If you are experiencing financial distress due to credit card debt you are unable to repay, there is hope. Contact us today to discuss the options that may be available. You can also click here to take advantage of our handy financial health check tool.