Beating Credit Card debt

Published on January 21, 2016 10:53 am, by

Kudos to you if you’re going in to 2016 free of credit card debt.  Did you know there are over 16 million card accounts in Australia?  The average balance is over $3, 000 and the average limit is approx. $9,000.  According to the ABS 2 out of every 3 credit card holders say they pay off their balances each month although it is closer to 1 in 3.

Credit card rates are high!  Credit card debt is expensive.  If your credit card feels out of control that’s because it is.  Closing your eyes to all but the minimum payment due is damaging.  Figures don’t lie.

What can you do?  

First you need to decide to stop the cycle.  It’s not enough to pay off the debt.  You can pay off the debt and be in the same position again within a year.  You need to pay off the debt and commit to spending within your limits.  This takes a firm resolve and continued awareness.

Do you have a credit card balance & money in savings? 

If you have $5,000 in savings and $5,000 in credit card debt you will be much better off paying off your debt, and starting to save again.  No interest charges!  Take a look at the interest you pay on your credit card and the interest you receive on your savings and work out how much you will save by paying off your debt.

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Money can cause feelings of stress

Money is one of the number one causes of stress.  Cards that hover around the limit month after month, when you can only cover interest, fees and enough of the balance to allow spending on it again next month contribute to this feeling of stress.  The banks won’t help you, they like you.  They are happy to collect your interest and charge you fees.  If you’re really lucky they’ll increase your limit so you can spend more and pay more.

Do you have a credit card balance & no money in savings?

Take the time to consider your options.  A good starting point is to research balance transfer facilities and low interest personal loans.  Many banks offer balance transfer facilities on new credit cards.  This is an interest free or low interest period where you move the funds from your existing credit card/s to the new low interest facility.

To get the best possible outcome from this you must use the grace period to pay off the entire balance (or as much as possible).  Some of these cards give you a specific period of time with no interest charges, so all payments you make will come straight off the balance of the card.  Generally an annual fee will be charged.  Where the card is used for purchases, funds paid off are credited to the purchases first before the balance transfer.  Cards can have high interest rates for purchases, and may revert to a higher rate at the end of their grace/interest free period.

Where to now?

Check out Credit Card compare for information on low interest credit cards.  I recommend paying specific attention to the section down the bottom How do balance transfers work?

Before committing calculate the interest free period and ensure you can repay the entire balance in this time frame.  Make future purchases out of a debit account, thereby not needing to repeat the exercise twelve months down the track.  If you need a card for emergencies or day to day purchases, get a small limit ($2,000) 55 days interest free credit card and pay it off in full every month.  Be careful with this, as you need to stick to your repayment plan on the interest free card as well.

The key to breaking the credit card cycle is paying off the debt and spending less than you earn.

Related articles –
Be the Boss
Snapshot of a journey from not budgeting to budgeting
Stress, Money, Stress, Money… to deal

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Jen is an experienced banking professional who loves wine, coffee, finding a bargain and of course her three beautiful children. Since Jen's first budget led her to buy a home at 20, Jen has passionately helped others to make better decisions with their money.

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