While the festive season may be over, for many of us, the credit card debt we accrued during the silly season remains.
According to the Australian Securities and Investment Commission, it is estimated that Australians owe approximately $32 billion on their credit cards – or $4,300 per card holder come January.
For some people, the impending credit card bill fills them with terror as they think back to all the money they spent over the festive period.
If this sounds like you, don't despair. There are a number of easy steps you can take to pay off your credit cards quickly.
Set a budget
A detailed budget can help you pay off your credit card quickly and easily – all without negatively impacting your regular spending and savings goals.
If you don't have a budget, this is a great opportunity to start one. Look at your salary and your expenses, such as groceries and bills, and identify how much money you can comfortably pay off your credit card each month.
A detailed budget will also help you to identify if there are any areas where you can cut back and reduce your regular expenses.
Pay more than the minimum amount
One of the best ways for people to pay off their credit card debt quickly is to make more than just the minimum repayments each month.
The minimum payment is usually 2% of your closing balance. This needs to be paid back by a due date to avoid a late payment fee and interest costs.
However, if you only pay back the minimum each month, you will end up carrying the debt for an extended period of time.
For example, if you owe $4,000 on your credit card and you only make the minimum repayments of $80 a month, based on the average credit card interest rate of 15%, it will take you more than 21 years to pay it off. By paying $200 a month off your credit card, you'll have your credit card paid off within two years.
Switch credit card lenders
Switching to a different lender may help you pay off your debt faster.
A number of banks offer balance transfer credit cards with a 0% interest rate for a limited period of time.
By switching to a different lender and taking advantage of the low or 0% interest rate, you should be able to pay off your debt in a timely manner.
If you are thinking about switching lenders, it is important to keep in mind that you may be charged a one-time balance transfer fee as well as an annual fee. In addition, once the promotional period ends, your interest rate will revert to the lender's standard rate.
Limit credit card usage
If you don't want to switch lenders, but don't want to be hit with a similar level of debt next year, it may be worth speaking to your lender about reducing your current credit card limit.
By reducing the overall credit card limit, you won't be able to accrue quite as much debt on your credit card, which will ensure you remain in a good financial position.
Consolidate your credit card debt with your mortgage account
If you are still struggling to pay off your credit card debt, it may pay to speak with your local mortgage broker about debt consolidation.
By consolidating your credit card debt into your home loan, you will effectively reduce your interest rate, which will make your regular repayments more manageable.
In addition, you do not have to worry about different debt obligations, as you'll only have one regular loan repayment to make. However, do not fall into the trap of being too relaxed, always put as much as you can towards your debts.