Step-by-Step Guide to Getting out of Debt

Information verified correct on October 28th, 2016

Debt, and credit card debt in particular is a problem that just won’t seem to go away even during the gentle lull in financial panic. Debt can dominate your life, leaving you feel down, stressed, and extremely anxious. The trouble is it’s so easy to get into financial difficulty, and it can often creep up on you, only becoming obvious once it’s too late.

Hopefully if you’re reading this you’ve identified you have a problem, and are committed to getting out of trouble and back in financial control. Hopefully our guide to credit card debt will help you on your way to financial freedom.

How Does Credit Card Debt Work?

The word debt describes what happens when you owe an individual or company money. The debt has been incurred because a lender has given you money to pay for something when you didn’t have the money at hand to pay for it yourself.

The danger with spending money you don’t have now is that it’s incredibly easy to lose track of what you’ve borrowed, and with interest charges increasing your what you owe, your debt can very quickly grow into an insurmountable figure.

Whilst the spending decisions you make are yours alone, the banks and lenders have to take some responsibility for the rising debt problems because they make it so easy to borrow money in large quantities.

Not only do they make it easy to borrow money you don’t have, but they very often encourage it. Enticing customers with low introductory rates, special gifts for new card-holders, and catchy adverts that promote frivolous spending.

So how do you get into credit card debt, and how do you spot the warning signs that you may be in trouble?

Getting Into Debt

Because of the way credit cards work, getting into debt with them is unfortunately very easy. When you sign up for a credit card you’ll be given a credit limit. This is the amount of money you are able to borrow or “spend” on the card.

At the end of the month or billing cycle you have two choices. Repay the money you have borrowed in full and pay no interest, or make a partial payment and have interest charged on any remaining unpaid balance.

If you repay your balance in full each month it’s unlikely you’ll ever fall into credit card debt. If on the other hand you only make partial payments each month you can find a small unpaid debt can rapidly turn into something much larger and difficult to handle. This is because the effect of compounding will soon take hold, especially if you continue to spend money on your card whilst your balance is still unpaid.

There are a number of bad habits that can lead to getting into credit card debt. Here are some of them you should be trying to avoid:

Poor research- When you’re about to sign up for a credit card you should be comparing as many different offers as possible. This way you can get a credit card that will suit your financial personality and financial needs.

Grabbing the very first credit card that comes your way could result in you picking a card with a high rate of interest, or high annual fee. You could find yourself with a card with an expensive reward scheme that you’ll never use, or a host of other extras that will cost you money and go to waste.

Do your research and make sure you’ll get the right value from the credit card you choose.

Spending without thinking- Some consumers (hopefully not you) get into the horrible habit of spending money on their credit card without thinking, and without any regard for whether they can afford to pay the debt back.

Poor planning and frivolous spending is a combination that will always lead you down a dangerous financial path. You must remember at all times that money you spend on your credit card is not free. It is real money that has to be paid back.

Disorganisation- If you’re someone that isn’t very well organised then a credit card can soon become problematic. Bad organisation can result in you making purchases you forget about and don’t budget for, or even worse see you forget to pay your bills on time, which will mean fees and charges being added to your debt.

Only making minimum payments- Only paying the minimum payment expected on your account each month is the quickest way to get yourself into trouble. The monthly minimum payment on your card will usually only be a very small percentage of the unpaid balance. Whilst that may seem very affordable you need to remember interest is then being charged on the rest of the unpaid balance.

This is doing one thing and that’s increasing what you owe. By making over-payments or repaying your balance in full each month you avoid all instances of interest, thus reducing what you’ll pay back overall.

A Common Cause Of Debt

Contrary to popular belief people don’t always get into debt because they’ve been irresponsible or silly with money. A very common cause of credit card debt is sudden emergencies where money is required. People often find themselves facing situations where a major home repair is needed, a car needs replacing, a job is lost, or someone becomes ill or dies.

During these times if money is not readily available to help people deal with the problem, they’ll often be forced to use their credit card to solve the issue. If they struggle to repay the debt then interest will start increasing the balance and the cycle of debt will begin.

The most effective way of avoiding this sort of situation is to build yourself an emergency fund to deal with these exact situations. Try to put a small amount of money aside each month in an account totally separate to your normal transaction accounts. This account should only ever be used in an emergency, but should still be easy to access.

As the money in the account begins to increase you can reduce the amount you pay into it each month. Try to get into the habit of replacing any money you use from this special emergency account so it doesn’t ever drop below a certain level.

Having an account like this is a really effective way to stay financially self-sufficient, and can help you avoid the need to borrow money on credit.

What Effect Will Debt Have On Your Life?

Carrying the burden of debt will affect your life in a number of ways. Firstly it will have a dramatic effect on your personal life. There is nothing worse than shuddering in fear every time a letter drops through the letter box, or being worried to answer the telephone in case one of your creditors is chasing you for payments.

Spiralling debts can leave you feeling anxious, depressed, and hopeless. It can also have a negative effect on your social life and interactions with loved ones.

In addition to the emotional effects of debt, there is also the damage to your credit file to consider. A history of debt will leave a mark on your credit file that could make obtaining credit in the future difficult. This could be especially problematic when it comes to buying a property.

So how do we get out of this terrible cycle of debt once we’ve become trapped? Let’s have a look at some general hints and tips, before introducing you to a couple of advanced but highly effective debt solutions.

Getting Out of Debt- Where to Start

Change the way you think – There are certain mental habits you should get into which can help you change the way you look at your debt problems. The first is accept you have a problem. Running away from the debt or ignoring it’s presence will not make it go away. Admit you are dealing with debt and you can begin putting together a strategy to deal with the problem.

You also need to be patient. Although we’d all like the debt to disappear as quickly as it arrived, you need to accept it may take some time for you to get completely clear of trouble. Becoming impatient could lead to rash decisions or a loss of motivation. Stay focused and don’t rush. Remember Rome wasn’t built in a day!

Stay positive! This is another vital mental shift you need to make. Being in debt is not nice but you’ve realised you have a problem, and are now taking the steps to deal with it. Being debt free may seem like an impossible dream at the moment but every journey begins with one step so don’t be so hard on yourself.

Start Planning Your Way Out of Debt – Coming up with a structured plan is vital to your progress. You need to sit down with a pen and paper and find out exactly where you stand financially. Make a list of all your earnings and all your expenses.

Make a list of every single debt you have, and make a note of the interest you’re paying on each one. This will give you a much clearer picture of where you are, how much you owe, and how many people you owe to.

Pay Off as Much as You Can Every Month – Now you have a better idea of how much money you have left each month, and how much you owe to each creditor you can now start figuring out how to reduce your debt.

The quickest way to get started is to pay off as much of your debts as you possibly can each month. Once you’ve looked at your earnings and expenses you’ll be left with your monthly surplus money. You need to use as much of the surplus money you have to put towards debt payments.

The more you pay the quicker the debts will get cleared. As your balance shrinks so will the amount of interest you accrue each month.

Reduce Debt: Pay Bi-Monthly – Bi-monthly payments will help you reduce debt because your debt will be paid off faster. This is a good option provided your creditor doesn’t charge you some kind of pre-payment penalty for paying more than you are supposed to.

Pay the Most Expensive Debt Before Any Others – One of the most common strategies in debt management is to pay off the biggest or most expensive debt before you try and tackle the rest.

Look at which debt has the highest rate of interest or highest balance and make all your over-payments to that first. Your smaller debts will be doing less damage to you in terms of interest and can be put on hold until the larger debts are reduced.

Talk to Your Lender – Some people avoid talking to their lenders because they worry about what will be said, or because they are embarrassed about their situation. In fact, speaking to your lender could help you clear your debt. If you let them know you’re having financial problems and need some help some lenders may look for ways they can assist you.

A common way lenders help customers in trouble is by giving them a lower rate of interest. This normally comes with the condition that the card account is closed, but the lower interest rate makes this a very worthwhile sacrifice.

If your lender refuses your initial request for assistance be polite but persistent. It’s in the lender’s good intention to help those struggling financially after all.

Reduce Debt By Consolidating – Consolidating your debts is a really good way of being able to easily manage all of your little debts. It can be a big challenge keeping track of what is due and when to pay. This could increase your risk of missing a payment which will no doubt leave you with additional interest and late fees to pay.

Consolidating your debts can also result in a lower interest rate. Because the rates of every creditor is different, you might be lucky and find a consolidator or a loan with a better rate than your creditors. This will save you a lot of money in the long run.

And with just one big debt instead of numerous small ones, you will have less to worry about. With one payment due every month, you will immediately feel like you are back in control of your finances.

Debt Reduction Snowball Card Repayments – The snowball credit card repayment method is a simple yet effective way for you to pay off your debt. With this method, you pay the minimum payment on all of your debts except to the creditor that you owe the least amount to. On this account, you should make payments of as much as possible. This way you will be able to pay it off as fast as you can. Once it is paid off, take the amount that you were paying on that account and pay it towards the next debt. Gradually, the payments will accumulate into a bigger and bigger amount – a snowball effect.

The only downside to this method is that you will be paying more interest in the long run. But, you debt reduction will have momentum!

Reduce Debt With Automatic Payments – It is very common for credit card companies and creditors to enable you to set up a payment schedule for automatic payments which are paid directly from your bank account. They may even offer you a lower rate for doing this, since there is less clerical work involved.

This is a good way to reduce debt without having to remember your payment dates. If you often pay late, or forget to pay this might be a good option for you.

Spend Less, Work More To Reduce Debt – You can largely reduce debt by spending less. Although not buying a morning coffee might not seem like much, it adds up in the long run.

Working more is another alternative. If you’re out working, it means that you are making more money and also that you’re not out spending unnecessarily, which is a great way to maximise debt reduction.

These are some general things you can do to start reducing your debt, but now let’s have a look at two more advanced debt management strategies to see whether you could apply them to your situation.

How Do I Become Inspired To Fix My Finances?

The inspiration has to come from within your heart. You have to really want it. You have to be focused and ready to face your financial problems head on if you want to succeed in overcoming your financial hurdles, setting up that savings account and starting a better life for yourself and your family.

You should begin by asking yourself; “How will I fix my problem?”. You need to be competitive with yourself about finally becoming free of your debts.

Your method might be to start saving money, to reduce your debt or to find a way to be more financially responsible in order for your money to last you longer. So you have your method, but what about your inspiration? Think of some reasons for why being debt free will be the greatest decision you have ever made.

Imagine Not Having Any Minor Debts

Think of the impact being debt free would have on your life. You would no longer have to take your fortnightly paycheque and immediately start organising the money into debt payments. You wouldn’t have any credit card debt, no more house or car payments. You would be able to take your full paycheque and start saving money. It could go towards future investments – not only for you, but for your children.

Debt Diet Or Debt Detox? Take Your First Step To Financial Healthiness

Going on a debt diet is not much more appealing then going on a real diet.

No one enjoys the idea of putting away the chocolate and the fried foods, but we all know that at some point in life it has to happen. That is, if you actually want to continue fitting through your front door. Do not think of getting rid of your financial woes any differently, if you want to continue to have a front door to go through you have to cut back and get your money under control. It might not be fun at first, but it will pay off in the end.

Beginning A Debt Detox

The one thing you should understand is that all the money saving tips in the world will not help you if eventually you slide back into your old spending habits. No, this is just the beginning of what will wind up being a complete overhaul of your finances so that you can be debt free for the rest of your life. The first thing you need to do is get an honest picture of your finances. That means pulling out all of your credit card bills, loan statements, and all other debts so that you can add up how much money you really owe. The goal is to pay off everything. Once you know what you owe you need to figure out how you got there by tracking the way that you spend money. Every dollar that you spend should be written down so that after a few weeks you can see that the $50 you have spent on coffees can easily go into the next step which is stopping excess spending.

Cutting back on spending is probably the hardest of the debt free tips. No one wants to give up the things we enjoy. However, you absolutely must do it. Get yourself on a budget where you only take a set amount of cash out of the bank each week and once it is gone, you cannot spend any more. Get creative about ways to have fun with friends without having to shell out cash all the time. Try making it a contest with yourself to see how little you can spend each week. Continue to check your progress each month so that you can watch those balances decrease. Like stepping on a scale, this is the incentive you need to keep going.

Stop listening to all the debt-free solutions out there and start doing them. If you can manage to pay off all of the balances on your loans and credit cards, you will quickly find that you feel better and actually have more money then you thought you did. Take a close look at your life and see where you need to make cuts so that you can continue on a path of financial health. Being financially healthy looks great on everyone.

How You Can Do It

Having debts of any kind is no fun at all.

The sleepless nights, the fear of the postman, worrying every time the phone rings.

The sad fact is that many people who are facing spiralling money problems hide the problems, rather than seeing what they can do to eliminate debt. There are many more solutions out there than you may think and you may be able to get out of debt much quicker than you ever dreamed possible. Here are some of the steps you should take before your debt gets out of control.

Accept You Have A Problem

One of the first steps in your bid to eliminate debt is to accept you have a problem. Ignoring the debt will not make it go away. Once you acknowledge there is an issue, you can start finding ways to fix them.

Do A Budget

Make a list of every incoming bit of money you have and then every single outgoing you have too. That includes all rent, mortgage, fuel costs, food shopping, telephones, the lot. This will help you see exactly where your money is going each month and will give you an up to the minute snap shot of your finances.

Why Use A Budget?

Everyone talks about using a budget in daily life. However, some people are worried about what budgeting can do. Many people assume that it involves dealing with too many numbers. It can be confusing to these people. This is still important for anyone who wants to get out of debt.

A good budget will help you to have an easier time with removing all of your debt. This will work to ensure that you can save more money and avoid dealing with too many expenses over time. You can easily use budgeting to figure out what debts you do not need to deal with. This will help you to control your spending and therefore have an easier time with saving up your money.

In fact, having a plan to get out of debt will help you to have an easier time with getting your money to be under control. You will be able to figure out where you are going to go with your money and therefore have an easier time with avoiding debt.

Ideas To Use

You can use a variety of things in order to clear all of your debt. For example:

  • Prepare a spreadsheet. This can help you to review all of your expenses and all of the ways how you are earning money. This will help you to determine if you should use a different option for getting your money controlled.
  • Check on all of your credit card debts. You might be able to use consolidation on these debts. This may help you to easily reduce your debts without creating a substantial hit on your credit history.
  • Set up all of your assets in your budget. This will allow you to determine if there are any assets that you do not need. Selling them off may help you to get a proper budget set up. After all, the expenses you would have with some of these debts will be reduced if you are careful with those expenses.

What Will Happen?

The benefits of using these ideas to get out of debt will be very substantial. You will be able to keep from having to pay too much money to different creditors over time. This is because you will have all of your spending under control without any substantial amounts of money left to be paid off to anyone.

Also, it will be very easy for you to actually save money for different types of expenses that you really need to handle later on. You could save money for a future home purchase or to buy random things that you might have been interested in over time. You can also save money for your kids and all of their education expenses.

Getting out of debt can also help you to set up a good retirement plan. This is so you will be able to have plenty of money well after you leave the workforce.

You should use all of these ideas if you want to get out of debt. This is so you will have all of your spending concerns well taken care of while having plenty of money left for different things down the road.

See Where You Can Save

In the battle to eliminate debt, you are going to have to inevitably make some cuts somewhere. Look at your budget sheet to see if there are any areas you feel you could cut back. Are you paying too much for your telephone bill? Perhaps you are making calls during a time when they are more expensive? In this instance, you could change your phone habits and save money that way.

You can also look at some of the comparison websites online to see if you are getting the most valuable price possible on your household bills. Many people make hundreds of dollars of savings each year by using these sites online. This extra money could go towards helping you get out of debt.

Overpay Where You Can

Sticking to a minimum monthly payment is the slowest way to eliminate debt. It will take you years to get anywhere near debt free if you only ever pay what the creditors expect from you. Instead, wherever you can you should pay a little more towards your debts each month. This reduces interest and has the effect of lowering your overall debt.

One of the most obvious ways, which often go unnoticed, is to create a buffer simply by paying more than your minimum required payment. That is true when it comes to credit-cards, no doubt, but it also applies to your mortgage or to your personal debt.

Creating a mortgage buffer is very simple. Imagine a situation where your business is doing great and you have a little extra on your hands at the end of the month. Should you put it away in a savings account? Not necessarily. The financial institutions are not very generous with their interest rates these days. It might be better to put it to work for you. If your mortgage payment is about $1,500 a month and you pay $2,000 a month, each month, you can pay off your principal loan amount every month and you shorten the time it will take to repay the loan. Less time – less interest you have to pay on the property. Furthermore, if times become lean, you are ahead on your payments and can skip a few. Within one year, using the above calculation, you will secure 4 months of payments.

Personal Debt Buffer

When times get better, it is very tempting to splurge a little. Buy things you haven’t bought in a long time, go to places you always wanted to go and couldn’t afford. It is very tempting to increase your standard of living and adjust it to the present income. Creating a way to get out of debt is to wait a while with the well-deserved rewards and put that money towards paying off all your personal debts.

As painful as it may be, getting rid of your personal debt before you ‘live it up’, is a sure way to get out of debt.

Be mindful that different financial institutions have different rules about fast track payments. It is a good practice to ask the financial institution about the mortgage terms before you sign for the loan. But even if you didn’t, you can always ask the bank which rules apply to your case.

This is an age-old strategy to get out of debt quicker. Paying off your mortgage at a faster pace, paying off your personal loans and thinking about the future when times are good will create a buffer that might save you if times will get less fortunate, or, save you money in the long term.

Talk To Your Creditors

Most companies are very sympathetic with customers who are struggling to pay. If you are straight forward and honest with them, you can often come to some sort of payment arrangement with them that will help you regain control of what you are paying out.

The most important tip for getting debt free is to start doing something about it today. Do not wait. The longer you leave it the worse it gets. Start the process today and you would be surprised how quickly you can get back into the black.

Be Smart About Spending and Debt

The bottom line is that you can’t spend more money than you make if you want to find ways to get out of debt. It will never happen if you keep spending like it’s going out of style and you’re trying to get your fill before it does. Think about any new debt before you go into it and see if it’s really worth taking you off track to achieve your goal of being debt free.

There are a few questions you should ask before you decide to spend.

  1. Do you really need the items you are considering?
  2. Are there ways you can cut spending from your monthly budget?
  3. Can you save money from your current budget or do you need to make major changes in order to save?

Spending should never take precedence over your savings efforts. You are going to need to work hard to establish priorities. The bottom line is that on any budget, the less you spend, the more you can save.

Make Wise Choices For Your Daily Budget

Believe it or not, even the leanest budgets can be cut further by making wise spending choices in order to get out of debt. VOIP phones can eliminate monthly telephone bills, borrow DVDs from the library rather than renting them, learn to cook favourite restaurant meals through copy cat recipes rather than going out to eat, and spend a day at the beach instead of going to water parks or other more expensive entertainment options.

When you use these options to eliminate what would otherwise become credit card expenses, you are one step closer to the debt free living you’re attempting to enjoy. The savings can add up to quite a bit of cash if you always look for cheaper or free options for the money you spend.

Bank Your Raises

Raises are often used to help you cover the rising costs of living or to improve your station in life. When you use your raises to get out of debt, you’re accomplishing so much more. What better way to change your station in life is there than to live life debt free? The savings on interest alone will serve as another “raise” for you.

There are many paths you can follow at any and every income level to help yourself get out of debt. These are small changes that aren’t as painful as some of the other choices you could make to become debt free. Use the savings to pay off your existing debt and resist the urge to take on new debt and your future should be great.

Why You Will Love To Be Debt Free

If you need a little motivation, perhaps something on this list will inspire you to get in control of your finances and become debt free:

  • You can start living in the present, instead of paying off things from your past
  • You won’t have to constantly be thinking about interest charges, late fees or what you owe
  • You will finally be able to sleep peacefully, without the worry of debt keeping you up at night
  • Interest on your savings will go to your pocket – rather than interest on your debt which kept making your debt bigger
  • You will value your money much more than you ever did. You understand debt and the traps that it holds. Your knowledge will ensure you will never return to debt
  • You can finally start planning your retirement and perhaps deposit extra payments to your Superannuation
  • Opening the mail and the sound of a ringing telephone will no longer leave you with a feeling of dread
  • You will be able to afford to pay off your outstanding education costs
  • You can finally drop the emotional baggage that your debt created. Instead of focusing your energy on your debt, you can build stronger relationships with your family
  • You will set a good example for your children so that they will know the importance of saving money
  • Being free of your debt will enable you to focus on building up your savings towards a nest egg or an emergency fund

The Snowball Strategy

This advanced method of payment is actually contradictory to the strategy of paying the debt with the highest interest rate first, but may be suitable for those in debt who need a little more motivation.

With the snowball strategy you actually pay the smallest debt first. The idea being that once you have cleared a couple of the smaller debts you’ll only be left with one or two larger debts which may leave you less overwhelmed, and better emotionally equipped to deal with your situation.

The snowball strategy is strongly supported by financial expert Dave Ramsey who believes, “Successful debt management is 80% dealt with in the mind, and just 20% down to financial behaviour. Some people need to experience the small victories of repaying the smaller debts in order to stay motivated enough to deal with the bigger ones” he says.

Whilst the snowball strategy will work for some people, those who are confident enough in their ability to stay focused and disciplined would probably still do better paying the most expensive debt first.

Balance Transfer Offers

Rates last updated October 28th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Offers 0% p.a. interest rate on balance transfers for 18 months to help you manage your existing credit card balance with a reduced annual fee in the first year.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
NAB Low Rate Credit Card
The NAB Low Rate Card offers 0% p.a. on purchases and balance transfers for 15 months. This card also comes with a low annual fee.
0% p.a. for 15 months (reverts to 13.99% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $59 p.a. Go to site More info
NAB Low Fee Card
Enjoy a low introductory rate of 0% p.a. on balance transfers and purchases for 15 months.
0% p.a. for 15 months (reverts to 19.74% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $30 p.a. Go to site More info
St.George Vertigo Visa
Introductory offer of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases, plus a low annual fee.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
St.George Vertigo Platinum
A platinum card with a balance transfer offer of 0% p.a. for 18 months and an introductory purchase offer of 1% p.a. for 12 months with an annual fee waiver for the first year.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 18 months $99 p.a. Go to site More info
Virgin No Annual Fee Credit Card
Enjoy a long term balance transfer plus a $100 cashback offer (spend criteria applies) and never pay an annual fee for this card.
18.99% p.a. 0% p.a. for 18 months with 2% balance transfer fee $0 p.a. Go to site More info
Westpac Low Rate Card
A no frills credit card with an introductory rate of 0% p.a. for 16 months on balance transfers and 1% p.a. for 12 months on purchases.
1% p.a. for 12 months (reverts to 13.49% p.a.) 0% p.a. for 16 months $59 p.a. Go to site More info
American Express Essential Credit Card
Receive a $50 credit on eligible spend and get Smartphone screen insurance combined with a no annual fee for life card. Also enjoy a 0% p.a. balance transfer rate for 12 months.
14.99% p.a. 0% p.a. for 12 months with 1% balance transfer fee $0 p.a. Go to site More info
Bank of Melbourne Vertigo Visa Credit Card
Enjoy a low annual fee combined with 0% p.a. balance transfer offer for 18 months and 1% p.a. for up to 12 months on purchases.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
Bank of Melbourne Vertigo Platinum
A platinum card with a low balance transfer offer of 0% p.a. interest for 18 months and 1% p.a. for 12 months on purchases combined with complimentary insurance covers.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 18 months $99 p.a. Go to site More info
BankSA Vertigo Visa
A low interest rate card with a low annual fee, a long term balance transfer offer of 0% p.a. for 18 months and an introductory offer of 1% p.a. for 12 months on purchases.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
ANZ Platinum Credit Card - Exclusive Offer
Receive a low introductory offer of 0% p.a. on purchases for 3 months and 0% p.a. on balance transfers for 12 months. Also, enjoy an annual fee waiver in the first year.
0% p.a. for 3 months (reverts to 19.74% p.a.) 0% p.a. for 12 months $0 p.a. annual fee for the first year ($87 p.a. thereafter) Go to site More info

The Balance Transfer Strategy

Another strategy commonly adopted by those fighting debt is the balance transfer strategy. Also known as credit card “stoozing”, this technique involves moving your credit card debt to 0% rate deals constantly until your debt is clear.

As a way of attracting new credit card users, many lenders offer 0% balance transfer cards. These are special promotional offers where any new customer can transfer an existing debt onto the new card. The benefit of this is that the interest rate will be 0% on the new card for a short period of time.

This gives customers a great opportunity to repay the debt without having it increased by interest each month. Depending on the size of your existing debt you could save hundreds of dollars by getting balance transfer deal.

If by the end of the promotional period your balance is not completely repaid you should then try to once again transfer the debt to another 0% balance transfer deal. The idea is you keep moving the debt until it’s completely paid off.

Whilst this strategy does work very well you need to be aware of something before you start. Your credit file may hamper your ability to get a balance transfer card in the first place. You may also find you’re accepted for one card, but when you try and move the debt a second time you get refused.

For this reason you should exercise some caution when using this strategy, and keep in mind that you may not be able to get your chosen balance transfer deal every time.

Debt Consolidation

Those who don’t want the temptation of another credit card may want to look at another form of debt consolidation. This other form of debt consolidation comes in the shape of a personal loan.

Instead of paying multiple debts, when you use the consolidation strategy you simply package them all into one large debt. That way you only pay one creditor, and one rate of interest.

What you often find is that personal loans have a much lower rate of interest than credit cards, and this is where most of your savings will be made. You need to find a lender that offers a very low rate of interest, flexible payment terms so you can make over-payments without penalty, and one where there isn’t a charge for account maintenance.

Once again your credit file will play a part in whether you’ll be accepted for a loan, and whilst multiple credit applications doesn’t look great, if one lender does refuse your application you should still try one or two others. Many companies have different lending criteria and being refused by one lender doesn’t mean you’ll be refused by another.

You’re Back in the Black! Now You Have to Stay Out of Trouble!

There are few things that will make you feel relief like finally being debt free. You’ll probably feel like a massive weight has been lifted from your shoulders, and you can actually start enjoying life again. Once you’ve cleared your debts don’t completely switch off. There’s still work to be done!

Now you’re out of trouble you want to make sure you never end up in debt again. So how are you going achieve this?

Plan and budget- You want to get in the habit of doing a weekly budget so you know exactly what money is coming in and out of your household. Make a list of all your earnings and expenses like you did before and keep accurate records of every cent you spend.

It may seem a little extreme, but keeping a running budget going throughout the week will help you pay all your bills on time, whilst ensuring you don’t spend money you don’t have.

Make sure you plan ahead when it comes to things like groceries. Make a list before you go shopping so you only buy the things you need, rather than picking things up as you go.

It’s also very useful to keep receipts so you can check that the right amount of money is coming out your account. Sometimes mistakes are made and over the course of the year these mistakes could cost you a surprisingly large amount.

Ditch the credit- Once you’ve cleared yourself of debt, the greatest thing you can do is to eliminate the risk of getting in the same situation again. One of the biggest risk factors will most probably be your credit card.

If you have an emergency fund set aside you shouldn’t ever need to use a credit card in an emergency, and if you don’t have money to hand then you’re not supposed to spend it. Close all of your credit card accounts, and instead stick to using a debit card.

That way you still have the ability to spend money on a card, and can still enjoy the benefits of shopping online, but you can only spend money that is actually available in your bank account.

The most effective way to avoid debt is to stay clear of any form of credit and that includes store cards and personal loans. If you ever find yourself in a position where you do need to borrow money try and do it in the cheapest way possible. Most the time you’ll find the cheapest way to borrow money is with a personal loan.

Head the advice offered in this guide, and hopefully very soon your debt nightmare will be over!

The Feeling of Being Debt Free

It is very difficult to pay off debt and it can take months or years depending on the debt. There are credit cards to pay off, loans to take care of, sometimes there are mortgages and vehicle loans to take into account, and possibly many more types of debt to take care of. It might seem impossible to pay off these loans but with a lot of work it can be done. After all of that effort, when the debts do get paid off, there are very few feelings like it. It is amazing and feels absolutely awesome.

While sometimes when debt is paid off, it doesn’t stay away, there are still those times when debt can be cleared again. There might be another mortgage that is needed or another loan to take out, but whatever the case, with another goal of paying it off, it is possible.

There are a number of different ways that a person can get out of debt and start enjoying the debt free life and even have some savings. Many people deal with the credit card and are brought under by the interest rates. Just by battling this and staying away from them can be a big thing for someone to stay out of debt.

Debt free is one thing and getting to that point can take a while but building up savings is another thing. This can actually help a person stay debt free.

Building the Savings

Being free of debt is a wonderful feeling but when it only lasts for a small period of time, it can be discouraging. To make the debt free status stay, it can help to have some savings. There are always those times that the unexpected expenses come up. This is when a lot of people actually get back into debt. When a person has some savings to rely on, they don’t have to get back into debt but instead they can dip into their savings.

Creating some form of savings while attacking debt levels may seem like double the burden but it is worth it and it can be done. By having money deposited automatically into a savings account with each pay cheque, it is not felt as much in terms of money that a person can’t spend and it adds up after a while.

The Feelings of Being Free of Debt

There are many feelings that a person can feel when they are debt free. These include being proud, happy, excited, and motivated.

These feelings are important for the future of the person in getting rid of their debt and staying that way. They can build their motivation from the first three feelings and without motivation a person will not achieve their goals.

Making It

Being motivated and keeping up the effort is a big deal and for the person who accomplishes getting rid of their debt, they really should be proud. There is so much to be said for individuals that can attain this that they need to be congratulated by themselves and others.

Good Debt vs Bad Debt – A Quick Guide

Debts seem inevitable, and for most of us, they are.

Very few people can pay cash for college tuition or a house. There will be things that we want but cannot pay for so we take on that item as a debt and pay for it over time. Debts are a necessary thing, sometimes they can be a lifesaver when otherwise you would have to deplete your cash savings. Debts as a whole appear bad, and many of them are, but some can be necessary for a greater good, and some can be for things that will increase in value. There are good debts and bad debts

Good Debt

In general, good debt is a debt is something that you need but cannot pay for upfront such as a home, a car, or a college education. When used to help you make or achieve more than you paid, that is a good debt. Good debt also involves using debt to achieve a financial goal, such as increasing your credit rating.

Yes, debt can increase your credit rating if used wisely. Using a credit card for example, for occasional purposes, making payments on time, and keeping a low, or no, balance can show your credit responsibility and increase your credit score. Good debt can easily and quickly become bad debt if you do not seriously take into consideration what you can afford and cannot.

A house is a good debt, but it can be a bad debt if you obtain a mortgage for a house that you cannot afford. A vehicle can be good debt, unless your monthly payments are more than you can comfortably handle. Using debt as a leverage to invest in financial instruments, real estate, career opportunities, or home remodeling projects can be good debt. If these things are not carefully done and if they do not produce a financially desirable outcome, then the debt becomes bad. So, simply put, smart debt is good debt.

Bad Debt

Debt used to purchase things that reduce in value is generally bad debt. Using credit cards to purchase disposable items is bad debt. It is even worse when the credit card carries a high interest rate and you maintain a high balance. The purchases do not increase in value and you end up paying more for the item because you pay interest on the purchase until you completely pay for it, plus the interest.

Borrowing money to pay for things that you cannot afford and do not need is bad debt. Many things we buy are immediately consumed and do not improve our situation one bit. So borrowing money for these things is not wise as we end up paying more for the initial value or amount of the item and in the end have less to show for it. Taking a vacation on credit, for example is bad debt. You do not need it and if you cannot afford to pay for it in cash, borrowing money to pay for it would be a bad debt to carry.

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Credit Cards Comparison

Rates last updated October 28th, 2016
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Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
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ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
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HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
NAB Low Rate Credit Card
The NAB Low Rate Card offers 0% p.a. on purchases and balance transfers for 15 months. This card also comes with a low annual fee.
0% p.a. for 15 months (reverts to 13.99% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $59 p.a. Go to site More info

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