Reducing Credit Card Debt: 10 Ways to Take Control

Credit cards can be an excellent way of purchasing goods and services as they allow you to delay the payment interest free until the bill is due.  However, it's all too easy to overspend and find yourself facing hefty interest payments and struggling to pay off credit card debt.  The good news is that you can take control of your credit card debt and ensure the debt does not control you. Start to take control today by following these ten simple steps.

1: Write a Budget Plan
To start reducing your credit card you need to work out where you've been going wrong and ensure you do not continue to mount up up further debt.
Start by writing down a list of all your monthly incomings such as wages (after tax), dividends from shares or interest from savings and so on. Following this, write a list of all your regular outgoings such as mortgage or rent payments, personal loans, council rates, utility, phone and Internet bills, fuel & vehicle maintenance, insurance, health & groceries. Make sure you include other aspects of your life such as entertainment, eating out and clothes shopping.

Total Monthly Incomings – Total Monthly Outgoings = Monthly Cash Flow

Once you have these figures you can calculate your monthly cash flow by adding up your total incomings and subtracting your total outgoings. Hopefully your incomings will exceed your outgoings leaving you with positive monthly cash flow.  However, if you find your outgoings exceed your incomings you have negative cash flow and are pushing yourself further into debt each month.

Search through your expenses for areas where you could cut back. Maybe you are eating out too often or treating yourself to more new clothes or shoes than you really need. You need some nice treats to look forward to but make a budget for non-essentials & entertainment and stick to it. You can then use the spare cash flow each month towards paying off your debts.

2: Pay off more than the Minimum Balance
Credit cards have traditionally required a minimum payment each month equal to 3 - 4 percent of the credit card balance. These days they can be as low as 1.5 percent. At that rate it can take years to pay a card off due to the interest charges if you only pay the minimum due each month. Pay as much as you can afford each month over the minimum. You will find your repayments exceed the interest charges and you debt starts to reduce.

3: Highest interest cards first
If you have multiple credit cards then focus your efforts on paying off the card with the highest interest rate first. Don't try to pay a few extra dollars off every card each month, simply pay the minimum balance on all cards other than the one with the highest interest. Pay all you can afford off this card until you have paid the balance off in full. Once this is done you should move onto the card with the next highest rate of interest and repeat the process.

4: Don't wait for the Bill.
You receive your credit card bill once per month but your interest is actually calculated daily.  You can reduce your interest payments by making repayments as often as you can afford. For example, if you get paid weekly and can afford to pay $100 off from each pay cheque, pay $100 off every week rather than waiting until the bill is due. Over time this can accumulate to have a big impact by saving several weeks worth of interest on the money you pay off.

5: Consolidate your Credit Card Debt
When you have several different credit cards it can be difficult to manage the debt and remember which cards you have paid off. Many credit cards have heavy penalties for late payment which will set you back from reducing your debt. Having all your credit card debt in one place makes it much simpler to manage and gives you a clearer picture of your financial situation.

6: Interest Free Balance Transfers
One way to consolidate your credit card debt is via a balance transfer to a new credit card. Many credit card companies offer introductory balance transfer offers such as 0% interest for 6 months. This can be an effective method if you focus on paying off the debt during the introductory period. You also need to think about what interest rate the credit card will default back to after the introductory balance transfer period ends.

7: Low Interest Credit Cards
Credit cards have traditionally been an expensive form of debt with interest rates as high as 18-19%.  Increased competition from new entrants to the market has created a new breed of low interest credit cards. These cards have ongoing interest rates between 8.99%-12.99%.  Low interest credit cards are helpful if you carry an outstanding balance from month to month. They tend to have fewer features such as reward point schemes but could save you hundreds of dollars per year in interest compared to high interest cards. Examples include the St.George Vertigo card which as an interest rate of 8.99% and the Aussie Mastercard with a 10.49% interest rate.
 
8: Speak with your credit card company
If you're having problems paying off your debt you should phone your credit card company and explain the situation. Many are very supportive and might arrange special payment terms to help you pay the debt down.

9: Use a Debit Card
If you're struggling to control your spending using a credit card then you could consider using a debit card for new purchases. A Mastercard or Visa debit card has similar acceptance to credit card but is linked directly to your savings account. As a result your spending is limited to what you have in your bank account and there are no nasty surprises in the form of a bill each month. You can keep a credit card for major purchases and your existing debt while you pay that off.

10: Finally, Don't Panic.
While being in debt can be stressful it can be brought under control. Use the methods outlined above to get you started. There are also non-profit organisations which help with credit card debt management and financial advisers who can devise a detailed strategy for debt reduction to suit your needs.

Disclaimer:

No investment advice provided to you.
This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.