Do you have a large amount of credit card debt that feels overwhelming?
Even though you may feel like you’re alone, credit card debt is a problem for many Australians. According to the Reserve Bank of Australia, balances accruing interest climbed by $241.7 million in November 2020. However, the debt is down from $31.6 billion three years ago according to Canstar. Accumulating a large amount of credit card debt might lead to poor credit. This may affect the way lenders see your future loan applications. Your credit card is good for emergencies and unplanned spending, but how you use your credit gives credit reporting bodies insight into your behaviour.
The best first step to getting back in control of your finances is putting together a plan. We will list some strategies and simple steps that can help you get on top of credit card debt.
1. Pay your card on time
Focus on paying your credit card on time so that you can avoid paying extra interest or late fees. A simple step to take is organising direct debit or automatic transfer from your bank account. If you set it for the day your pay goes in, you can ensure that you will have enough money to cover the amount. If this is not possible for you, setting up an easy calendar reminder can help you stay on track.
When you stick to monthly repayments, this might be reflected positively in your credit history. If you are able to stay up to date with payments, this may help ensure that you do not end up with a default on your credit report.
2. Plan to pay higher than the minimum
If you are able to make higher monthly payments, you can pay off the debt faster and in turn, save money in the long run. Paying only the minimum repayment can accumulate more interest and extend the time required to pay off the balance.
If you are finding difficulties paying over the minimum amount, it may be worth speaking to a financial counsellor. Early intervention may prevent a little financial problem from becoming a larger problem down the line.
3. Don’t add to your existing debt
Make a budget and stick to it. It might be useful to restrict your spending to the essentials (bills, food and rent or mortgage) and only pay with cash or from your debit account. Consistently review your budget and ensure that you have adequate cash flow for the essentials. You must be able to keep paying the minimum and be able to keep up with your living expenses.
A good strategy to maintain is swapping your credit card for your debit. According to the RBA, debit cards were used for nearly 45% of consumer payments. A debit card can be linked to your saving account which may prevent you from accruing debt. Sometimes life is unpredictable, so if you would prefer to use your credit card for an emergency, use only one.
4. Cut back on the number of credit cards you have
If you have a few different cards, make a solid plan to reduce this number. Once you have paid off your cards, cancel each card once you’ve paid it off.
Set yourself a simple goal of repaying one card at a time using these two strategies:
- Focus on paying the smallest debts
This may help empower your journey to financial security when you pay off the cards with the smallest debts. Use this motivation to empower you to move to the next smallest debt.
2. Highest interest rate
Consider paying off the card with the highest interest rate so you don’t inadvertently accumulate debt. Once you pay off this milestone, then you can continue paying off your other cards.
A credit score is reflective of your behaviour over time. So even if you have been a little less than diligent with debt in the past, it is never too late to improve your habits.
At Debt Fix, we want to help all Aussies keep their credit healthy. If you want to talk through a budget you can stick to or lowering your credit with a financial expert, contact us today! A confidential, no-obligation discussion with our friendly team may help you reduce your credit card debt to keep your credit score in good shape.