How to Pay off Credit Card Debt

A March 2015 report from Moneysmart estimated Australian credit card debt to stand at $33billion.
While the average debt in the same report was cited as being $3,300 per cardholder, there are sure to be many Australians whose credit card debt is way above the average, with others well below it, or even holding credit cards that they never use.

Defining Credit Card Debts

Defining your credit card debts is easy; simply take all of the debt you currently owe on credit cards and on store cards and add it up to discover your total credit card debt.
While this may give you a figure that leaves you taken aback, your balances are merely what you owe without considering interest.
It might be the case that your true level of credit card debt is far higher, and you may ultimately end up paying a lot more in repayments and interest, particularly if you’re not able to pay much more than the minimum every month.

Why Credit Card Debts Matter

Credit card debts are significant for a number of reasons. Firstly, they may have a personal impact on your life.
From a financial perspective, your credit card debts may also be a hugely influential factor on your credit report and for your credit score.
Not only can creditors see what types of credit you can currently access, they can also view your credit limit and repayment history. If your credit card debts are so high that you are struggling to meet your repayment obligations, or you have already missed some payments, this will be visible and will negatively affect your credit score.
While some people maintain a particular balance on credit cards and are able to keep up with repayments, for other people, credit card debts can become overbearing and start to affect their lives.
There are several options for people looking to pay off their credit card debts.

‘From a financial perspective, your credit card debts may also be a hugely influential factor on your credit report and for your credit score.”

First, Stop Spending!

It may sound an obvious piece of advice, but it is essential to stop spending on credit cards before you can even begin to deal with the debts you have on them.
If you feel that might be easier said than done, then you’re probably not alone.
When you don’t feel you have the discipline to stop spending while still having the credit cards in your pocket, what are the options available to you?

• Cut the card up so you cannot use it.
• Explain to a friend or family member what you’re planning, and ask them to keep hold of the card for you.
• Place the card in a bag or box filled with water, and then put it all in the freezer.

Granted, some of those might seem like extreme lengths to go to, yet they may be necessary if you’re serious about paying off your credit card debts.
Once you have stopped spending you can then start to explore the options for paying off your credit card debts.

Carry on What You’re Doing

If you have stopped spending on your credit cards, it means you’re no longer growing your balance. Depending on how much you owe, you might be able to bring your debts down quickly just by continuing to pay towards your balance each month.

Pay More

One of the big problems many face with their credit card debts is that they only pay the minimum payment each month. This in turn leads to interest continuing to build up and means that it will take far longer to repay the balance.
The Moneysmart article we referred to earlier cites the following example:

• On a credit card debt of $4,400, only making the minimum payments each month means it would take 31 years to repay the debt in full, and pay nearly $15,000 in interest alone.
• In contrast, by paying $216 a month the credit card debt would be cleared in two years.

Even if you can only commit an extra $50 – $100 a month to paying your credit card debts, this can make a big difference both to the time it will take to clear the balance as well as the interest you will pay.
By continuing to pay only the minimum payment, you are likely doing little more than servicing the interest, which is why clearing the balance will take so long.

Speak to Your Creditors

If you have already reached the point where you’ve missed payments or you are struggling to meet your obligations, then it might be time to speak to your creditors and come to a repayment arrangement.
It may be a good strategy to look at what you can afford to repay per month and then spread this across the various credit card debts you hold. You could look to commit the largest sum of money to the card with the highest balance or interest rate and look to pay this off first. When speaking to your creditors you may also be able to arrange a freeze on your interest so you do not incur any additional charges.

Consider a Debt Consolidation Loan

If you can feel your credit card debts creeping up on you, but you have so far managed to keep up with the repayments, it might be worth considering a debt consolidation loan.
It is advisable to look at this option at the earliest opportunity, as missing payments may damage your credit score and reduce the likelihood of you being successful when applying for a loan.
Someone with numerous credit card debts may be able to use a personal debt consolidation loan to reduce their repayments to one regular outgoing, and also relieve themselves of the stress of dealing with several creditors at a time.
If you take out a debt consolidation loan they can pay off your credit card debts right away, so you can focus on fixing your finances and paying your fixed repayment sum to us.

“If you can feel your credit card debts creeping up on you, but you have so far managed to keep up with the repayments, it might be worth considering a debt consolidation loan.”

Paying Off Your Credit Card Debts

You have several options available when it comes to paying off your credit card debts, but the first step should always be to stop spending on your credit cards and to take a different outlook to personal financial responsibility.
Once you are able to do this you will have a much clearer picture of the best option you have for paying off these debts.



What you need to know

Constancy Wealth Management is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 AFSL 232706 and Australian Credit Licence 232706. This information does not take your circumstances into account, so read the relevant disclosure documents and consider what’s right for you. If you acquire an AMP product or service, AMP companies and/or their representatives will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Ask us for more details.

This post contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information