How to cut your credit card debt
If you own a credit card and you use it – you’re in debt. According to research by ASIC, Australian credit card debt totals $45 billion and 1 in 6 credit card users are struggling to pay their debt. While credit cards are convenient, are widely accepted by retailers, easy to use and access, they are also expensive and many of us forget that they are in fact a loan that attracts significant interest, fees, and charges.
Here are some tips to cut your credit card debt and breathe a little easier!
Transfer your balance
One of the fastest ways to reduce your interest is to transfer your card to another credit card company with a lower interest rate. Many companies offer an introductory low rate on balance transfers for 3,6 or even 12 months. Shop around and find the best deal for you. But be aware of the conditions of transfer which usually require you to pay off your original balance in a certain time frame or incur a penalty.
Ask for a lower interest rate
You may not know this but many companies would rather lower your interest rate than lose you as a customer. Call them up and ask for a lower interest rate. It never hurts to ask!
Debit instead of credit
Many banks and financial companies such as Visa and MasterCard offer a debit card instead of a credit card. This means that you can use your debit card where credit cards are accepted BUT you spend your own money from your regular bank account rather than using credit.
Cancel that card
If your credit card or cards are out of control, cancel it and start making regular repayments. While you’re still accruing interest on the unpaid debt, you will stop spending and increasing your overall debt. This can be a tough thing to do if you use your credit card as your primary payment method – but bite the bullet. Out of control debt is bad for you, your family and your future plans and dreams.
If you know you’re going to miss a payment, be proactive
If you are unable to pay the minimum monthly payment amount, be proactive and call your credit card company. Missed payments, late payments and, worst of all, non-payment can affect your credit rating. Avoid all of this pain by talking to your credit card company and explaining your situation. Most companies are understanding of ups and downs in their customer’s financial situations and will try to work with you. However, you will still be accruing interest on your card so make sure you get on top of those payments fast!
If you’re using your credit card to purchase large, one-off items you may be better off waiting and saving up at least some of the cost. Unless you intend to pay off your credit card within the interest-free period, saving up 30-50% of the purchase cost first before buying items like white goods & holidays can save you a lot in interest later on.
Make payments more often
This is true for any kind of debt that’s accruing interest on a daily basis – from home loans to credit cards. You may only have to pay once a month but if, for example, you are paid fortnightly, schedule payments to your credit card automatically and you have instantly saved on interest. This makes sense if you think about it – paying early reduces the amount of interest accruing earlier.
Use cash windfalls to pay down credit card debt
Did you get any money from your tax return? Did you inherit? Get cash as a gift? Get a Christmas bonus? A win on the Melbourne Cup? Sell something you no longer want or need? Use that cash to pay down your debt straight away. Sure, it’s not as fun as going out to a nice restaurant but it will be in your best interest in the long term. A windfall now can be a huge saving to your hip pocket.
Budget to reduce debt
Most of us think budgets are boring and I’m sure many yawned when reading this. However, a budget can be a simple tool to help you manage your money and pay down debt quickly. You don’t have to be an accountant, just keep track of how much you earn, how much you spend and what you spend it on. You can then adjust and find cheaper alternatives to leave a little extra to pay your debts.
If all else fails, seek professional help
If you’re really stuck and have a credit card debt you can’t pay then it’s probably a bigger problem than just your credit card. Being unable to pay your minimum monthly payment for more than a few months is a sign of dire financial straits. If you’re not confident you’ll be able to meet your future payments, you need help and fast before interest payments climb higher and higher.
Safe Debt Management services are designed to help you get back on track quickly. Though a debt agreement, we can combine and reduce your debts, freeze interest and fees, and help set you on the path to financial freedom. Help is at hand! Simply apply online for a free debt assessment. What have you got to lose – but your debts!