How To Get Rid Of Credit Card Debt

Information verified correct on October 21st, 2016

Credit Card Debt Sucks, You Know That Right?

There is a lot of talk about how to get rid of credit card debt and for good reason. The burden of credit card debt affects millions of people, with a great number of them carrying more debt then they can pay off on a regular basis and owning more credit cards then they actually need. Most people get their first credit card at a young age and plan to use it responsibly.

For whatever reasons a lot of those people are unable to stick to that plan and wind up overspending and getting trapped in the credit card debt cycle. Perhaps it is because of the high cost of living or the ease of using credit cards but before they know it most people have amassed a big balance that causes a lot of stress and seems impossible to overcome.

Debt in the US – Scary Levels

The numbers put out by the Federal Reserve Bank in America regarding credit card debt should be enough to make anyone rethink their credit card payment strategy. Right now the consumer credit card debt in the United States is over $850 billion. The typical credit card customer has four credit card with one in ten of those consumers carrying more then 10 credit accounts. Around half of credit card customers pay only the minimum payment on their cards each month. They also found that around 40% of families are spending more money then they make, which is a recipe for financial disaster. Australians are also following suit – and this is not something you want to be part of.

If you are one of the many people who struggles with credit card debt try not to let these numbers discourage you too much. You can get rid of credit card debt, becoming financially free in the long run. Even though a lot of consumers spend too much and use their cards too often, you do not have to be one of them. No matter how big your card balances are or how much you lean on them to pay for daily expenses, with a little hard work and a solid plan you can escape the cycle of credit card debt.

Steps To Get Rid Of Credit Card Debt

Step One – Set up a budget. You have probably heard this advice a million times, but if you do not actually have a budget now is the time to set one up. A lot of people avoid setting up a budget because they think it is about limiting how much they can spend and limiting how they live their life. But, in reality having a budget allows you to do the things you really want with your money because you know exactly how much you have and where it is going. Your budget should encompass all of the necessary expenses and have a built in plan to pay off your credit card debt. You will have to set aside a significant chunk of money so that you can put more toward your debt then just the minimum payment each month. While it seems like a big job at first, once you have a budget you can work within it and greatly reduce your financial stress.

Step Two – Cut off your credit card spending. It might seem like a huge inconvenience, but if you are dedicated to getting rid of credit card debt you have to stop adding to it. The only way to do this is to completely stop using your credit cards immediately. You cannot get out of debt if you are still adding to your balances. If you have a hard time not reaching for your credit card when you need cash or to make impulsive purchases then remove them from your wallet. Freeze them in a block of ice or lock them up in a safe, do whatever is necessary to stop spending on them right now.

Step Three – Set up a payment schedule that allows you to start paying off balances. The only way to actually pay off a credit card debt is to pay much more then the minimum balance each month. If you only pay the minimum payment you will see very little movement in your overall balance because of the high rate of interest. The smartest approach, meaning the one that saves you the most money is to pay off the balance that has the highest interest rate first. Higher interest cards cost more because they earn interest at a higher rate, obviously, so you will save the most money by paying them off first. Once you have cleared the highest interest debt you will have even more money to put toward each successive debt, allowing you to pay everything off faster.

Step Four – Consider debt consolidation. If you have very high interest rates you may be able to save a lot of cash by consolidating your credit cards. Not only will this option save you some cash, but it will make it easier to manage your bills because they will all be combined into one easy to remember payment each month. There are a couple of ways to go about this.

You can look into transferring the balances of all of your credit cards over to one of your current cards or you can seek out a new card that has a good rate on balance transfers. The amount of debt that you have will determine which balance transfer suits your needs most. Make sure you get a deal that has a low interest rate but also has low fees associated with the card, do the math to make sure that by transferring you are actually saving money.

Beware of those advertised low introductory rates as they may not reflect your actual interest rate and may jump up exceedingly high once the introductory period expires. Also, keep that balance transfer credit card locked away and do not use it until after the balance is cleared. Using it for purchases could trap you in an allocation of payments scheme that will land you right back in a big pile of credit card debt before you know it.

Step Five – Cancel the cards that you do not need. While some financial advice suggests that cancelling credit cards is bad for your credit file, so is keeping too many accounts active. If you are trying to recover from credit card debt the smartest course of action is to just keep a couple of cards that have the most valuable rates and give you the greatest benefit. You can use these cards to rebuild your credit history. Remember that having too much credit can not only impact your file in a negative way, but also lead to temptation to spend even if you cannot afford it. You may have to do a little work when you call up the credit card company to cancel your card. The customer service representative are trained to resist your request for a cancellation, but do not let them make your decision. Stick to your guns and insist on cancelling no matter what promises they make when you call.

Step Six – Step six is optional, get help if you need it. While some people may have a relatively easy time examining their financial situation and setting up a budget that they can live with others will need help. The process can seem insurmountable, which leads a lot of consumers to give up on the idea of getting rid of their credit card debt. If you fall into this category do not be afraid to get some professional assistance. There are debt counsellors, accountants, and financial planners who can help you come up with a budget and a plan to be debt free. Make sure that the person whom you are using is interested in your financial health and not in selling you financial products. They should look at your total debt, income, and lifestyle and come up with a plan that allows you to live within your means and get out of debt.

Money Saving Ideas

While you are on the road to financial freedom you will want to save money as a way to get rid of credit card debt. One of the first things you will do is to evaluate your credit cards. If you are like most people you have probably not given much thought to your credit cards and how to make them work for you. However, there is a method to credit card use.

Your credit card should match up with your spending habits. If you plan to use your card regularly but pay it off each month, then you can have a card with a higher interest rate, but low annual fees would work most for you. On the other hand, if you are going to carry a balance over each month the card that has the lowest interest rate will save you the most amount of money. Make sure you understand how your credit card works and how much money you will be charged for different transactions. If you have questions a financial planner can help you make the greatest decision for your budget.

Cutting Down Your Unnecessary Luxuries

Since you have also already come up with a budget you probably realised that you were over spending in several areas of your life. One of the first things that gets cut out of budgets is eating out and entertainment expenses. This does not have to mean that you will be stuck in your house eating hot dogs for the rest of your life. You can and still should get out and enjoy your life and your community. Look for free entertainment like concerts put on by the city.

Use your local library to borrow books instead of buying them and even borrowing DVDs instead of going to the movies. You do not have to give up eating well either. Buy or borrow a cookbook and make your own gourmet meals. While you might not make perfect meals on the first try you will learn and have a lot of fun in the process. Eventually, you will probably like eating your own creations instead of those overpriced restaurant menus.

A lot of people use shopping as a form of entertainment. Not the smartest idea when you are trying to cut costs, so you will have to come up with another option. An easy way to get to deal with your penchant for shopping is to adjust it instead of getting rid of it. Second-hand shopping can be just as much if not more fun then shopping at traditional retail stores. It also allows you to get creative, taking a piece of furniture or clothing and figuring out how to make it work for you.

If you have the determination you can get rid of credit card debt. It may be a bit of a struggle at first, but eventually you will find living within your means much easier then being burdened by excessive debt. Remember that being debt free is equal to being financially secure so work hard for your own financial security and make it last for the rest of your life.

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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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