We know that the best way to slash credit card debt is to cut the card in half as soon as you receive one. But if your card is racking up a growing debt, you may have to take some drastic steps. You may want to try these tips:
1. The minimum repayments illusion
Interest is calculated on the full amount from the date of purchase, but repayments aren’t set the way they are on home loans. Too many people fall into the trap of thinking making minimum repayments are enough to keep their debt from growing. Minimum repayments are the amount you need to pay to avoid being charged penalty fees, and that’s all. They’re not set according to how much you owe and wont help you repay the original debt within a set time.
2. Pay more than the minimum
Treat your credit card debt like any other debt—an amount which needs to be paid back over a certain period of time. The difference is that you get to set the terms.
Use this loan repayment calculator to work out your how much you should be paying:
3. Set up programmed payments
By setting up regular payments which are automatically drawn from your account, you’re committing to paying off this debt before you’re tempted to spend.
4. Look for a cheaper credit card
If you can’t quite get on top of this debt, look for a cheaper credit card. Those with upfront fees normally charge a lower interest rate and many offer interest-free terms if you transfer across the amount you owe—these are known as balance transfers and need to be paid off within a certain time. Once again, check their terms and find out what interest rate applies after the interest-free period expires.
5. Look at other options
Personal loans usually have much lower rates than credit cards and may involve an application fee. If you’ve been making repayments on your credit card you already have a repayment history the lender can base their assessment on.
6. Consolidate into your home loan
It’s surprising how many people use credit cards when they have a home loan they can draw on. While it makes good sense to keep your credit card loan separate from the mortgage, it doesn’t make financial sense when credit card rates are two or three times higher. The trick is to bring these two loans together, and then increase the repayments on your home loan by the amount you were repaying on the other loans. This means you’re not repaying a short-term debt over 25 years of a home loan.
7. Cut it up
If you’re in trouble with your credit card, then it’s probably not for you. If you want to cut and cancel the card, you need to call the provider. You’ll have to pay any outstanding amount before they close the account and ask for written confirmation, otherwise a small debt could balloon with fees.
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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.
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