In a society where everyone wants everything now, credit cards are becoming increasingly popular. As credit card debt in Australia reaches $48.9 billion and banks continue to lower minimum repayments (sometimes to just $10/month), personal debt is becoming an increasingly serious issue for many Australians.
It can be stressful to think about escaping the credit card trap so we’ve put together some useful tips on how to slowly but surely get out of the debt cycle.
- Stop using all your cards
Continuing to accumulate debt across all your cards will make it seem impossible to decrease the amount of debt. Ideally you’ll be able to live without a credit card by sticking to a budget and living within your means but sometimes this just isn’t feasible. While you are paying off your current debts, stick to using just one card that has the lowest interest rate.
- Lower your limit
Once you’ve removed the temptation to spend across multiple cards, it will be time to eliminate the temptation to overspend. Lower the maximum amount you can charge to your credit card each month. The debt will keep piling up and you’ll never achieve your goal of living free of debt if you are unable to keep up with new purchases.
- Pick a strategy and stick to it
To tackle the debt you are facing, you need to create a realistic action plan.
Some great strategies that we recommend are:
- Paying off the card with the highest interest first and work down
- Paying off the card with the smallest debt first and work up
These strategies will give you milestones along the journey to debt freedom that will allow you to see visible progress being made and will motivate you to continue.
- Close the account
Once you’ve paid off a credit card, make sure you close the account to avoid any unnecessary service fees.
- Take advantage of interest free periods each month
Whilst having no credit card would be the ideal situation, sometimes this just won’t work for your personal situation. Make sure you have only one card and you always spend within your limits.
Stick to your budget and spend only what you can afford. This means that when it comes time to paying your credit card bill each month, you will be able to pay it off in full and avoid the staggering interest that minimum repayments attract.
Paying off your credit card in full each month also takes advantage of interest free periods and avoids you paying interest upon interest.
To discuss other potential strategies for you, contact us for actionable advice and guidance.