Here are seven tips for speedy credit card repayment:
1. Pay more than the bare minimum
Your credit card debt won’t shift if you’re only paying the bare minimum at the end of every month. Credit lenders usually set the minimum repayment per month at around 2% to 3% of the balance. That means minimum payments are actually just paying off some of the interest, and making minimum repayments does not make a dent in your actual balance. Pay off a little extra every month, and you’ll be happy to see your balance shrink.
2. Multiple cards? Deal with one at a time
It’s important that you pay the minimum on each card, but after that you should focus on one card and work away at it until it’s completely paid off. You generally want to pay off the card with the highest interest rate, or the smallest balance. Once it’s paid off, why not remove it from your wallet?
3. Make use of your savings
You may be hesitant to empty your savings account for the sake of paying off a credit card balance, but consider the fact that any interest you would earn on those savings would be much smaller than the money you’d end up owing in interest on your unpaid card balance. It’s worth weighing up your options.
4. Examine your spending
Pick apart your monthly spending, and look for unnecessary spending, or areas where you can cut back. Perhaps do a written budget. Then apply the newly freed up money to reducing your credit card balance.
It can take a while to get your credit card balances back to zero – after all, the debt often takes a while to build up in the first place. The earlier you make a start though, the sooner it will get done.
Canstar’s Research Manager, Mitchell Watson shares three options for how to consolidate and pay off your credit card debt:
5. Consider a balance transfer
Many financial institutions offer balance transfer deals – essentially a credit card with a low introductory rate. Rates can be as low as 0%, for up to 12 months.
Do be aware though that credit cards offering a balance transfer deal tend to revert to a higher than average interest rate once the deal is done. So, make sure you carefully check all the terms and conditions, to avoid any nasty surprises from your new bank in the future.
6. Choose a low rate card
Unless you are on a super-low rate already, you could probably save money by changing your card. The lower the interest rate the better – that means more of your payments are going towards clearing the debt and not paying interest. Look for a credit card with a rate in the low teens.
7. Consolidate your debt into a personal loan
This is a more structured way to clear your debt and will ensure that your debt disappears gradually over the term of the loan – because it has to.
Whichever option you choose, you have made the first step towards getting rid of the festive financial hangover.
Next, you need to create a plan to pay off your debt.
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