How do you get rid of credit card debt?

It can help to set a realistic goal for how much you can afford to pay towards your credit card debt each week or month. This can be done by assessing the total amount you owe on your credit cards and then updating your budget to direct much-needed funds towards chipping away at this debt.

When preparing a budget, consider setting aside funds for your day-to-day expenses first. This will include items such as groceries, utility payments and rental costs. Once the essentials are taken care of, you may apply the surplus to pay off your credit card debt. This might mean going without take-away meals or your morning cup of coffee from a cafe for some time, but you’ll see the dollars add up and your debt reducing at a faster rate.

One of the best ways to reduce your credit card debt is by paying more than the minimum amount due. The average minimum repayment for a credit card is $20 or 2% of the balance, whichever is greater.

Unfortunately, when you only pay the minimum amount due, you’re barely chipping away at the debt, and often just paying off the interest on the balance. This does not effectively reduce your outstanding debt, and can mean that a $10,000 credit card debt takes you 40 years to pay off in full. 

Further, if you continue using the card, your outstanding balance will continue to increase, leading to a higher interest payment each time.  If you have multiple credit cards on which you owe money, you may consider tackling your debts one by one, while continuing to make the minimum repayments on others. 

There are two popular strategies for this approach. One involves paying off the card with the smallest balance first. The other option is to pay off the card with the highest interest rate first. The former will help you stay motivated, as you’re likely to clear off smaller debts faster. However, you may save more with the latter by getting rid of a debt that’s likely to grow faster because of the higher interest rate.

A balance transfer card allows eligible customers to shift your existing debt to a new card that charges zero interest for a set period - usually several months to two years. This may help some cardholders to save money on interest charges during the initial period, giving you much-needed breathing room to pay off the debt without accruing more interest.

However, it’s important to remember that the 0% interest rate on a balance transfer card does not last forever. Once the balance transfer period is over, your interest rate will most likely revert to a much higher purchase rate. Therefore, you’ll want to budget to ensure that you are paying off the entire balance during the zero interest rate period or you’ll begin growing your debt again. 

Consider calculating how much money you need to pay each month to clear off your debt by the end of the introductory term by dividing your entire balance by the number of zero-interest months offered by the credit card provider. For example, if you have a $10,000 credit card balance and an 18-month balance transfer period, you could divide this into monthly repayments of $555. 

It’s also possible to take out a personal loan for debt consolidation if you qualify for one. A personal loan might make it easier to manage your finances by spreading out your debt repayments over a couple of years with a potentially lower rate of interest than what you were paying to your card provider. However, you’ll need to have a good credit score to be eligible for a personal loan, which may not be the case if you’ve been struggling with your debt payments.

If you are really struggling to pay off your debt, keep in mind that most credit card issuers should be willing to work with their customers through their financial troubles. By speaking to your credit provider about your situation, you might be able to arrive at a more comfortable repayment plan. 

You can also call up the National Debt Helpline on 1800 007 007 for free and confidential advice from professional financial counsellors.

As always, there’s no single best strategy to get out of credit card debt for everyone. Only you know what will work for you, depending on your level of debt, financial goals and budget. If you’re unsure of the right strategy or finding it difficult to manage your debt, you may consider speaking with a financial counsellor for help.