We use cookies to provide you with the best possible online experience. Read more

Managing your credit card debt

Here are some tips to help stay in the black.

Money Discover more joy in your budget If you have finished decluttering your house, consider organising your bills!
Money How to battle your buy now pay later spending Here are our 5 tips on how to battle the hangover.
Property Morrells reno budget See how Jess and Jarrod Morrell completed a major renovation.

Getting into credit card debt can be easy – so here are some tips to help stay in the black.

Credit cards can lead to debt problems if you’re not careful

There are over 15 million credit cards in circulation in Australia, and research by ASIC has revealed that one in six consumers have trouble with credit card debt.

Credit cards can be an effective way to manage your household finances, deal with emergencies, earn rewards and improve your credit rating. But it can be easy to overspend and end up struggling to repay credit card debt. It’s important to always use your credit card responsibly and to practice good financial habits from the start.

Understanding how your card works

Credit cards can be an effective way to manage your household finances, deal with emergencies, earn rewards and improve your credit rating. But it can be easy to overspend and end up struggling to repay credit card debt. It’s important to always use your credit card responsibly and to practice good financial habits from the start.

Having an understanding of how your card works, including interest-free periods, minimum repayment amounts and how interest is calculated, can help you make the most of it.

When your first statement arrives, take some time to familiarise yourself with the layout of the statement. Important things to look for include your outstanding balance, the minimum repayment required, your repayment due date and details on how to pay.

You can choose the amount you repay on your credit card each month, as long as you meet the minimum repayment. The minimum repayment amount is calculated by your credit card provider and can fluctuate depending on the total amount outstanding on the account. Ideally, you should try to pay the total outstanding balance each month. This can help interest charges (if your credit card has an interest free period).

3 tips for avoiding credit card debt

Depending on the type of credit card you have, you may be charged upwards of 20% p.a. interest on your transactions. To avoid excess charges, here are some tips:

  • Keep track of your spending: It’s a good idea to keep an eye on what you are using your credit card for. Sign up for internet or mobile banking so you can check on your balance regularly – this will avoid a nasty bill shock at the end of the month.
  • Try to pay your balance off in full each month: If you can afford to, try to pay the full outstanding balance each month. This can help reduce interest charges, especially where your card has an interest free period. If you can’t repay the full balance, paying more than the minimum repayment amount can help you get on top of your debt sooner.
  • Be aware of how interest is calculated: Knowing how interest is charged can help you make wiser decisions when it comes to using your credit card. Some credit cards have different interest rates for cash advances compared to purchases, and even if your card has an interest free period it is unlikely this will apply to cash advances.

In trouble with debt? Ask for help

When debt starts to rack up on one or multiple credit cards it can become overwhelming. The first stop to getting on top of your debt is finding out your options.  

Contact your lender and let them know you’re having problems. They may be able to help by setting up an agreed repayment plan to help get you back on track.   

Getting rid of existing credit card debt

You can use a credit card debt calculator like this one from ASIC’s MoneySmart to work out how much you would need to pay each month to reduce your debt faster. Some calculators will also reveal how much more you would pay in interest charges if you only paid the minimum repayment, so it can be a good motivator to pay off your debt sooner.

There are a number of different ways to pay off multiple credit card debts, so you need to find what works best for you. Some say to tackle the debt with the highest interest rate first, while others believe you should tackle the smallest debt first and work your way up from there. However you decide to tackle your debt, it’s important to put a plan in place and keep your repayments consistent.

Staying debt free

If you are on top of your credit card debt, it can be easy for it to creep back up once you start spending again. Here are some tips to help maintain your debt free status:

  • Spend responsibly: Keep track of your spending and don’t use your card unnecessarily. Check your internet banking regularly to view your transactions and diarise when your repayments are due.
  • Reduce your credit limit: If you feel your credit limit is too high and you struggle with the temptation to spend, you can lower your credit limit. This can be a good measure to keep your spending within your means both temporarily and long-term.
  • Use credit cards just for emergencies: Placing limits on your credit card use can be a good way to develop healthier financial habits. If you struggle to avoid the temptation to spend, try removing your credit card from your wallet and only use it when an emergency arises.

This article is intended to provide general information of an educational nature only. It does not have regard to your objectives, financial situation or needs and must not be relied upon as financial product advice. Before you act on this information, you should consider whether it is appropriate for your circumstances. Information in this article is current as at the date of publication. Applications subject to credit approval and fees and charges are payable. Terms and conditions apply and are available on request.

Need a credit card?

Get all the benefits of Visa with a competitive, low interest rate.

Read more

Send this article to friends and family

Share
Money Reasons to convert your passbook account Thinking about swapping your old school passbook for a newer style savings accou...
Money Audit your subscriptions How the decluttering trend can save money in your budget.