The average credit card in Australia is carrying an outstanding balance of $3,140 and most people have more than one credit card. In fact, total consumer credit card debt courtesy of plastic has reached $49 billion in Australia and is affecting millions of people.
Anyone with a credit card balance rolling over from month to month, knows the pain of paying out ridiculous interest rates of up to 18% – a rate more than three times that of the average mortgage.
Clearly, eliminating or getting your credit card under control can improve your financial situation dramatically, but doing so involves changing your habits and your lifestyle. You cannot get credit card debt under control whilst continuously charging new purchases.
Using your credit card is often for an impulsive purchase. Some advisers have suggested that you put your credit card on ice, literally. Place it in a tub of water and put it in the freezer! That way when it comes to using it, you have to wait a day for the ice to melt before you can access it. This gives you time to really think about whether you need the item or not.
So what can you do to get rid of credit card debt?
If you have multiple credit cards, transfer all your credit card balances onto the card with the lowest interest rate and get rid of the rest.
Consider consolidating all your debts into your mortgage. If you have enough equity in your home you could roll all your debts into your home loan. Be aware that you are now paying all your credit cards and personal debts off over a longer period of time.
Use your savings to pay off your card debt. Earning three per cent interest on a savings account while paying 18% on a credit card balance is a bit counter-productive.
Pay more than the minimum monthly payment. You will never get out of debt by just paying what amounts to only the interest on your debt.
Review your personal budget to see where you can save a few extra dollars which could be used to repaying your credit card.
The steps to get out of credit card debt are relatively simple, but it takes self-discipline and a willingness to change aspects of your lifestyle to make the process stick. If you would like to talk to us about any of the methods discussed here, please give us a call as we would be happy to help you to get your money working for you.