Kill your credit card debt with these 8 tips
Tip: #1: Pay on time
The first tip is obvious for some and not so for others. Drum-roll please…
Always pay your credit card debt on time! Doing this will keep your credit history intact. A bad credit rating means buckles chance of getting a loan, a mortgage or another credit card. The credit reporting system means lenders can see when you’ve missed a payment if you go to apply for another financial product. This is particularly important for people looking to transfer their credit card debt to another card under a balance transfer facility.
Tip: #2: Pay more than the minimum
If you can, pay more than the minimum payment required each month. Even better, pay the whole thing off each month and then start afresh.
Every little bit extra you can pay above the minimum each month will reduce the cash you have to fork out to cover interest charges down the track - this may mean a few sacrifices to get your debt under control.
If you have a $2,000 debt at just shy of 20% interest p.a. and you only pay the minimum amount each month of 2%, it will take you over forty years to pay back, and you will have paid over $5,000 in interest. However, pay an additional $50 above the minimum, you’ll pay the card off in three years and you will have paid just $500 in interest.
The numbers speak for themselves.
Tip: #3: Introductory offers should also be approached with caution
Whether it’s a balance transfer promotional offer or an introductory offer on purchases, if you can’t pay back the balance in the introductory period, don’t take the offer.
You need to know that the introductory period that you’re looking at is long enough to accommodate your repayment budget. Jumping at a 0% rate, failing to pay off your debt before the period expires, then being clobbered by a high regular rate of interest will be a disaster for your bank balance.
One tip here if you are looking for a balance transfer offer, is to check what the revert rates are if you are unable to repay the debt in time. Some cards revert to the purchase rate, whereas some revert to what is typically a higher cash advance rate. Learn more about which cards revert to their standard purchase rate and which don't.
Long-Term Balance Transfer Credit Cards
Tip: #4: Haggle with your provider
Competition is fierce among credit card providers. They are always keen to keep their customers on board. You can ask your lender for an interest rate review. What’s the worst that can happen - they say, ‘no’? Your provide is all too aware of the promotional offers they give new customers, and the offers other banks can provide to you if you jump ship. They’re not going to see you walk away for the sake of a slight adjustment in your interest rate.
Tip: #5: Limit yourself
Credit limit increase invitations are something you have to agree to receive from the bank. But who’s ever heard of a credit limit decrease invitation? No one, that’s who. That’s because they don’t exist.
Your bank wants to see you continue to use the card, that’s because most of us are debt revolvers - carrying a balance from month to month. This is where the lender makes their money. Why not lower your credit limit as you pay your card off? This will stop you from spending the money you’ve paid off the card.
Just remember, each time you apply for a credit limit increase, it gets recorded on your credit file.
Tip: #6: Use cash whenever possible
Cash is king! Try to use cash where you can. Using cash makes it easier to stay out of debt. Of course, this may not be practical all the time, especially since buying a car with cash is likely to earn you a visit from the drug squad. Whether you're using cash or a debit card (which is really just electronic cash), it's cash is a great way to only spend what you have.
Tip: #7: If you have a debt on your credit card, make sure it's a low rate
Always check to understand what interest rate your credit card offers. Not all credit cards have the same rate and the variance is quite large. Check out some of the low rate cards in market at the moment.
Tip: #8: Ask about hidden charges
We’re all aware of credit card surcharges, the extra fees that comes with buying a flight online, for example, can make you cringe. In some cases it can be beneficial to use an escrow service, like paypal, to pay for goods or services that attract a credit card surcharge.Back to top
Frequently Asked Questions
How can I pay off my credit card debt?
To pay off your credit card debt it's important to put together a debt repayment plan. If you're currently paying a high interest rate, it's worth considering a balance transfer to give you some relief on those interest charges. You should always pay back more than the minimum repayment amount on your credit card each month. Check your most recent credit card statement - by law, banks now have to include information on how long it will take to repay your credit card balance if you only repay the minimum amount each month.
Can a maxed out credit card affect your loan application in Australia?
Yes. When reviewing your loan application (whether it be for a personal loan or home loan), the bank is assessing your ability to repay the loan amount. Accessible credit through your maximum credit limit on your card, is considered a risk and the bank generally makes their risk assumptions by calculating your repayment ability on the new loan based on the maximum credit limit on your existing credit cards being fully utilised.
I can't pay off my credit card in full this month. What does this mean and what are my options?
The most important step is to call your bank and ask for a payment extension. If you can extend the payment amount to a date which will give you enough time to repay the balance in full that would stop your balance rolling over in to the next statement period, which would then remove the benefit of the interest free days period on your card.
What is the fastest way to get yourself out of credit card debt?
There is not one specific way to get out of credit card debt the fastest, but the tips on this page above will definitely get out off to a good start. The first step is to look in to reducing your interest rates - consider one of the balance transfer cards we compare to get you started in that process.