Five tips to reduce your credit card debt now

What starts out as a convenience, as extra money just when you need it most or an easier way to buy more stuff can quickly become a burden.

Your credit card is not doing you any favours if you struggle to pay the minimum amount each month and think that hitting the credit limit is just plain inconvenient when you need to buy that special gift for your partner’s birthday. After all, it was on sale.

If this scenario describes you, you’re not alone. Collectively over the past 10 years, Australians have tripled their credit card burden. On average, according to the Reserve Bank of Australia, this is $4,700 for every card holder.

This likely means that you have a credit card debt that is unnecessarily eating away at your savings and contributing to your financial woes. So here are five top tips to get your credit card bill under control.

1. Pay more than the minimum payment

For this average amount of debt at a typical interest rate of 15 to 20 per cent, you’d be paying about $800 in interest every year (assuming an interest rate of 18.5 per cent and 2 per cent minimum repayment, calculated using the MoneySmart credit card calculator).

Continue on this path and you’d pay over $14,600 in interest over 49 years to clear this debt. But pay off $250 every month and this debt would be cleared in two years and you’d save $13,700 in interest.

Imagine how much worse it is with larger credit card balances. Always try to pay more than the minimum payment if you are serious about getting rid of debt.

2. Stop adding more debt

Think of your debt as a small hill of dirt in your back yard. To get rid of that dirt hill, you need to dig out a shovel at a time. Now imagine for every three shovels of dirt that you dig out, you toss four shovels back on. How long will it take to get rid of that little hill? Piling on more debt while you are trying to get out of it doesn’t make much sense.

Will you really miss that pretty new top in your wardrobe if it’s not there? Or the latest Dior sunglasses that match your new handbag? Chances are that you already have enough stuff, so stop adding to it!

3. Use balance transfers

Call up your credit card company and ask if they can lower your interest rate or offer you special interest on balance transfers. Repeat with all the credit cards you have, and consolidate your loans onto the cards that offer the best interest rate.

But watch out for any balance transfer fees and make sure you are really coming out ahead. Then read step 2 again.

4. Get rid of your credit cards

One of the biggest downfalls that most of us have is the reliance on credit cards. Unlike spending real cash, when you charge it to a card you don’t feel the burn. So if you cannot control how much you spend on your card then cut it up, lock it away, freeze it in a block of ice or bury it in your garden until you are out of debt.

5. Change your spending habits

You pride yourself in being the spontaneous type, and this can be a good thing when it comes to trying out a new vindaloo recipe. But it’s also your downfall when you go shopping. Have you ever bought a pair of jeans that looked hot on you under dim lighting but you’ve had to relegate then to the bottom of your jeans pile because they are not so flattering in the bright light of day – never to see daylight again?

Do you always plan before you buy something or do you just pick things up? Ask yourself if you really need it before you buy it. Better still, walk away and go back for another look in a few days time if it’s still playing on your mind. The chances are you’ll have forgotten about it by then. Take a long hard look at your spending habits and fix any shortcomings.

Start a financial diet

Going on a financial diet is like going on a food diet. It’s not easy and there are always temptations. But if you are enslaved by your financial miseries, it’s time to make some sacrifices before the molehill becomes a mountain of debt that forces you onto financial life support.