How to beat the credit card debt trap

Information verified correct on October 21st, 2016
Man's fingers trapped in a mouse trap

If you’re struggling to pay your credit card bills, learn how to manage your finances and avoid falling into debt.

No one ever plans to fall into debt, but once you have, it can seem difficult to recover. Most people just don’t know where to start conquering their debt problems. To avoid falling into the debt trap, follow the easy steps in this guide to keep your finances in check. If you’ve already found yourself in debt, scroll down to pick up some quick tips to consolidate your debts and take back control of your finances.

How to stay out of debt

Just like gaining and losing weight, it’s much easier to pick up debt than to eliminate it. To avoid falling into debt in the first place:

  • Spend only what you have. While the purpose of your credit card is to offer a line of credit, you should never spend more than you can afford to repay. Set yourself a budget each month and make sure you don’t spend beyond it. If you do, make sure you know how you can pay it back and aim to reduce your expenses for the next month. If you can’t fight the temptation to overspend, it’s better to stick to a debit card.
  • Avoid paying interest. Interest is not your friend. Left unchecked, compound interest can become your worst enemy. To avoid getting stuck in a position of not being able to repay your debt, decide at the outset that you will avoid interest altogether. This means paying the full balance on your credit card each month.
  • Stop spending your last dollar. Spending all you earn often leaves you vulnerable to debt. Creating a monthly budget can help with money management.
  • Start saving. Incorporate a savings margin into your monthly budget. A tenth of your monthly salary is usually a good place to start. Open a high-interest savings account where you can have a fixed amount of your salary transferred every payday. Forget about it, and be pleasantly surprised at just how much you’ve saved when you check a year or two from now.
  • Always pay your bills on time. Cultivating the habit of paying your bills punctually will help preserve your credit rating. Set up a payment reminder or regular direct transfer if you need.

How to get out of debt

If you’re already stuck in a painful debt rut, you may have to consider some more severe options:

  • Debt consolidation. Debt consolidation allows you to combine all your existing debts into a single debt with a lower interest rate. This helps save you money on interest charges, and also simplifies matters by allowing you to pay down one bill instead of many. If you are able to consolidate your debts onto a new credit card with a 0% balance transfer offer, this can buy you more time to pay off the debt with an interest-free period. Alternatively, consolidating all your debt by taking out a personal loan can save on interest. Learn more about debt consolidation and repayments with our guide.
  • Use everything you have. It makes no sense to have money sitting in the bank while you’re nursing a credit card debt.Your savings account will never earn you interest at the rate your credit card charges you interest. The sensible approach is to use every available dollar to pay down your debts and then resume your saving habits.
  • Negotiate for leniency. You have nothing to lose, and much to gain, by calling your credit provider to discuss your debts. Explain that you’re experiencing temporary financial hardship and request better terms of repayment or a grace period. Most credit providers are willing to help by renegotiating your payment plan and waiving any penalty fees.
  • Declaring bankruptcy. This is a drastic option, which you will only want to pursue when you see no way of ever repaying your debts. While it might bring immediate relief from creditors and debt collectors, bankruptcy will haunt your credit report for at least five years. During that time you will not be able to borrow money or get a credit card, and bankruptcy status may also negatively impact new employment opportunities.

Australia’s high debt levels suggest that many of us struggle to manage our money. Learning financial wisdom is more important than ever, and it’s not too late to start now.

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Credit Cards Comparison

Rates last updated October 21st, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
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.
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
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. 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

* The credit card offers compared on this page are chosen from a range of credit cards has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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