January 23, 2017
After the frenzy of Christmas shopping and all the extra costs of the festive season, January is the time when most people start to review their credit card spending habits.
The average Australian credit card holder has almost $4,300 in credit card debt and is paying $700 in interest each year. While most are diligent at keeping on top of their debt throughout the year, it’s occasions like Christmas that can cause debt to become unmanageable.
Thankfully, there are a number of ways you can pay off your credit card faster and rely on it less.
Set your annual budget
A budget provides you with a clear plan and is a written commitment to yourself to be more diligent with your money. Look at how much you earn and how much your regular expenses cost. This is also a good opportunity to identify areas where you can cut back on your spending.
Once you know how much you have left after your expenses are paid, you can allocate more money to paying down your credit card debt. So that you aren’t in the same position come next January, now is also a good time to start setting money aside for this year’s Christmas.
Make extra credit card repayments
According to MoneySmart, $4,400 of credit card debt will take you 31 years to pay off if you only make the minimum repayments of around $90 per month. During that time, you’ll also pay around $14,900 in interest.
By paying as little as an extra $50 more than the minimum repayment on your statement, you can pay this debt off much faster. If you can stretch that repayment to $216 each month, you can clear the debt in two years and pay around $5,200 in interest.
Set up automatic payments
Your credit card is one of many expenses you need to keep on top of. Once you set your budget and know how much you can afford to pay off each month, set up an automatic payment to come out of your account each pay day. That makes your monthly repayment one less thing to worry about.
Switch to a debit card or lower your credit card limit
The best way to avoid over spending is to remove the temptation altogether. A debit card allows you to make online purchases, but you will only be able to spend the money you have. The annual fees on debit cards are generally cheaper as well.
If you do need a credit card, talk to your lender about lowering your limit and ask them if they can offer you a better deal. When your spending is capped, you won’t be able to accrue as much debt.
Consolidate your debt
If your credit card will take you some time to pay off, you could consider consolidating it with your mortgage. This will reduce the interest you are paying and make your repayments easier to manage.
Look for a new credit card provider
Another way to avoid paying a high amount of interest is to sign up for a balance transfer credit card with an introductory interest-free period.
Balance transfers give you more time to pay off your debt, though you should be wary that these cards often have higher interest rates once the honeymoon period ends. You may also be charged balance transfer and annual fees.
Start to question your spending habits
Credit cards make it easy to spend beyond your means. Once you have tackled your debt, it’s worthwhile becoming more aware of your spending habits. Being mindful of every transaction you make will allow you notice patterns in your spending habits and identify areas where you can cut back without needing to regularly revisit your written budget.