As of January 2018, there are 16,711,163 credit cards in circulation in Australia. The national debt owing on these cars totals more than $32 billion. Are you one of the 70% of Australians who own one or more credit cards? Do you have a plan to pay off credit card debt?
The average credit card balance owing in Australia is $3000 with over $25 billion being spent on our cards each month! With so much money flying around, it's easy to understand how credit card debts can spiral out of control. We have 6 ways you can pay off credit card debt and we can lower our national credit card debt.
The Credit Card Debt Spiral
When you are in a tight spot or struggling to cover your everyday expenses, a credit card seems like a gift from above. Can't afford your power bill? You can with a credit card. Can't afford the petrol to get to work? You can with a credit card! Need a new washing machine but won't get paid for another week? Put it on the credit card!
The problem with all of these situations is that credit cards lull you into a false sense of security. The sad and stressful truth is, if you can't afford to pay your power bill now, you are really going to struggle to pay it in a few weeks' time with 18.4% interest on top. But once you start using and relying on your credit card, it becomes near impossible to stop using it, especially if you are in debt.
You simply must get rid of your credit card.
The good news is, there are ways you can pay off credit card debt. This article lists 6 simple and achievable ways to pay off credit card debt, but before you get started, you simply must stop using your credit card.
If you're stuck in the never-ending debt cycle, it might seem impossible to stop spending on your card. Especially considering it might be the only way you can afford your bills and expenses. But if you are going to pay off credit card debt, you need to break the cycle and to do that, you need to cut up that card!
In Case of Emergency
The bottom line is: if you can't afford to repay your credit card you shouldn't be using it. If you are worried about emergencies or being able to afford your bills, you could investigate government schemes and initiatives offered in your State or Territory. You might be eligible for a No Interest Loan Scheme (NILS). NILS offers safe and affordable finance for essential expenses such as:
- White goods like Washing Machines and fridges
- Education and medical expenses
- Vehicle servicing and maintenance
For more information on the options available to you, call 1800 007 007 to talk to a free financial counsellor service.
How to Pay Off Credit Card Debt
By not using your card, you know the exact balance you have to repay. From here, you have 6 options to pay off your credit card debt.
- Commit to repaying more than the minimum repayments each week
- Consolidate your debt by transferring the balance to a 0% interest card
- Consolidate your debt with a debt consolidation loan
- Consolidate your debt by refinancing your mortgage
- Apply for a Hardship Arrangement
- Entering into a Part 9 Debt Agreement
1. Repay Your Credit Card Debt with a Budget
I'm not going to lie, this method can take a long time to pay off credit card debt. It will be difficult and requires commitment. In order to pay off your credit card debt as it is, you need to work out a budget. If you don't make sure all your regular expenses are covered, you will end up needing quick cash and resort to using your credit card again. So it is crucial to know how much money you can afford to put on your credit cards without leaving yourself short.
Write a list of all your debts, how much they are and when they are due. Then figure out how much you need to put away each week in order to be able to pay these bills. For a more detailed explanation of working out your budget, read our article: How to Budget: A Step By Step Guide. Once you have gone through this process, you will know how much money you have left over to put towards your credit cards. It could be $10 a week, it could be $50 a week, just remember anything is better than nothing. If you have worked up a budget only to find you don't have any money left over to pay off your debts, you might need to consider a Part 9 Debt Agreement.
Now you know how much money you have to dedicate to your credit card, you need to figure out the best way to pay off your debt. One popular method has been developed by Dave Ramsey called the Snowball Method. Using the Snowball Method, you pick one card, usually the card with the smallest balance or the highest interest and put the majority of your budget towards this card while only maintaining the minimum repayments on your other cards. Then, once you have repaid your selected card, you redistribute the money to focus on another card and you carry on until all cards are repaid.
Alternatively, you can divide the money equally amongst your cards and set up a direct debit to automate the repayments. Each card will be gaining interest throughout this entire method and if your debt repayment budget is only small, it could take you years to repay your debt. The trick with this method is to stay focused and committed and any windfalls or bonuses you receive should also be dedicated towards your cards.
2. Using a Balance Transfer for Your Debt
Banks are in constant competition to win your business. One way to get more customers than their competitors is for banks to offer a range of convenient and affordable products. There are literally thousands of credit card products on the market in Australia and banks have made it really easy and beneficial for you to swap to one of their cards by offering a 0% balance transfer period.
A 0% balance transfer will allow you to transfer some or all of your credit card debt onto one card. That one card will charge you 0% interest for a promotional period. This gives you a grace period to pay off purely what you owe, without gaining interest. You can get 0% balance transfer periods from 3 months for up to 18 months, depending which product you use. To learn more about 0% balance transfer cards and finding the right one for you, read our blog post: Credit Card Debt Help.
3. Debt Consolidation Loans
To be honest, Debt Consolidation Loans are increasingly harder to come by in Australia, especially for people with defaults on their credit file. Which is a shame because it's usually people with a marked credit file who have the largest need for a debt consolidation loan. But that's not to say you can't use a loan to consolidate your debts.
If you have only one or two marks on your credit file and have an income from full-time or casual work, you could be eligible for a personal loan. If you have security, such as a car you own outright, you might be able to get a loan in excess of $5000. Even if you don't have an asset to secure your loan against, if you are working you could get an unsecured loan of up to $5000.
The interest rate of a personal loan might be less than that of your credit card/s and if you have multiple credit cards, paying them out with money from a loan will leave you with one interest rate, one set of fees and one manageable repayment. We recommend Positive Solutions Finance for all the lending needs of our clients.
4. Refinance Your Mortgage
Do you have a mortgage? Well you haven't been slugging away at it for nothing! If you have paid down a considerable amount of your home loan, chances are your property value has also gone up giving you equity in your loan. You could refinance your mortgage and draw on this equity to pay off credit card debt. If you want to discuss this as an option to pay off your credit card debt, I suggest you contact our lending partner, Debtstroyer Home Loans.
5. Ask Your Creditors for a Break
While your credit card debt might seem overwhelming, it is nothing new to your creditors. Millions of Aussies struggle with their finances and banks have arrangements in place to lend a helping hand to those who need it. If you are struggling to repay your debt, call your creditors and tell them exactly that! Depending on your circumstances, you might be eligible for a hardship arrangement. Every company is different, but you might be able to freeze your interest for a few months, extend your due date, temporarily decrease your minimum repayments or take a break from repayments for a short period of time.
You may need to jump through a few hoops and provide documentation, but it will be worth it in the end if you can relieve yourself from the stress of your debt, even if it is for a few months until you get back on track. Here is a guide on how to talk to your creditors.
6. Enter a Part 9 Debt Agreement
If you don't have enough money to pay off your debts and still afford everyday living expenses like rent, groceries and petrol, it's time to get serious with a Part 9 Debt Agreement.
A Part 9 Debt Agreement is a legally binding contract between you and your creditors outlining a new payment arrangement - one which you can afford. A Debt Agreement allows you to freeze your interest, reduce your overall debt amount and give you more time to pay off your debt. Sound too good to be true? Well, it's perks have a downside. A Part 9 Debt Agreement will have an effect on your credit file. The good news is, it will only last for 5 years and once you have repaid your agreement you will have a clean slate to start over.
When you enter a Debt Agreement with Debt Rescue, our Case Managers sit down with you and work through your budget. We figure out exactly how much you can afford to repay your debts after all your living expenses are paid. We want you to enter a sustainable, achievable and long-term solution so we won't leave you short for cash.
Once we have agreed on the amount you can afford, we will form a Debt Agreement Proposal and submit it to your creditors. We are often able to reduce your overall debt amount and freeze your interest, saving you thousands of dollars on your debt. To enter a Debt Agreement, you do need to comply with certain criteria set out by the Australian Financial Security Authority. To learn more about a Debt Agreement you can call us on 1800 00 3328 or visit our blog post: The Truth about Part 9 Debt Agreements.
Pay Off Credit Card Debt Now
These methods aren't exclusive. You don't need to decide on just one, you can try a combination of things until something works. For example, you might find you have too much debt to transfer onto a 0% balance transfer card, so you transfer what you can and then get a loan with a better interest rate to pay off the rest.
Living with debt is stressful and upsetting. The fact you are interested in reading this article shows you are ready to take steps to overcome your debt and get your life back on track and that's great!
It will be hard and there might be times when you fall into bad habits. Don't be discouraged if you have a setback, just pick yourself up, regroup, find your motivation and keep going. If you want to learn about more debt relief solutions, you can call one of our Case Managers at any time to discuss your situation and see what options are available to you. Our number is 1800 00 3328.