Most of us have had an uncomfortable level of debt at some point in our lives. Credit card debt can be particularly crippling due to high interest rates and because most of the payments are paying the bank interest and little off your debt. This makes you feel like you’re going nowhere. So what can you do to get on top of those credit cards?
Commit to eliminating debt and make a budget
Review your cash flow. Do you have spare cash to put towards reducing your debt, are you just breaking even or are you overspending and getting yourself further into debt?
Once you have your base line, look at ways to cut down your spending and start making extra repayments towards your card balance. For example, consider reducing entertainment for a period until your debt is manageable. If you have fully trimmed your budget as much as you can, but it is still not enough, look at how you can earn extra dollars. Think about getting a second job, selling your unwanted goods on Gumtree, or renting out a spare room.
Consider balance transfer options
A $5,000 balance at a current average card rate of 21% will cost $1,050 per annum. Moving to a zero percent card for 12 months will save you $1,050 interest, which you can now use to pay off your card faster. Shop around for the best deal and plan to pay the balance off during the interest-free period.
Pay more than the minimum
Credit card companies give you with a minimum amount that you need to pay each month to avoid fees. Paying this amount covers the interest but only pays about 2 to 3% off the actual debt.
Your card statement will tell you how long you will be paying the debt off if you only make the minimum payment. The length of that time frame should encourage you to pay more than the minimum.
Pay off the highest interest rate card first
If you have more than one credit card, choose the card with the highest interest rate to pay off first. While you do this, continue to pay the minimum payment on your other cards.
If your cards have the same interest rate, it can be motivating to pay off the smallest balance first. Once paid off put this card away or cancel it and then move on to the next card.
Apply spare cash or savings to your card balance
It might be hard to let go of hard-earned savings, but you’ll pay much more on credit card interest repayments than the interest you’ll earn from a savings account. It makes sense to pay off your cards first and then work to rebuild your savings.
Say goodbye to credit
Once your balance is paid off, remind yourself how easy it is to get into debt and what it takes to pay it off. If you don’t feel that you can comfortably pay off your card balance at the end of each month, or the temptation to spend is still there, consider closing your credit card account. If you decide to keep your credit card, ask your bank about their low rate card options.
Ask for help
If you’re struggling, reach out to us and we’ll point you in the right direction. You don’t need to do it alone. We’re here to help.
This information is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.