The RBA recently revealed that Aussies are losing their appetite for taking on large debts with the average credit card debt falling 1.1% over August to $3262. It’s great that we’re becoming more frugal and cutting back on unnecessary spending, but despite this Australians are still bad at paying off the amounts we already owe on our credit cards and this is actually getting worse.
The most crucial rule to owning a credit card is to pay off your debt in full each month to avoid incurring large interest rate charges. If you can’t afford to do this, it means you’re either living beyond your means or not paying enough attention to your finances. If you’ve broken the golden rule or you just simply couldn’t avoid whipping out the plastic, we’ve come up with a simple solution to help you smash your debt fast without having to completely neglect your lifestyle.
Step 1. Work out how much you can afford to repay every month.
The first step necessary to reducing your credit card debt is to work out how much you can afford to repay every month. The more you can repay each month the less interest you will be charged over time and the quicker you can wave that debt goodbye. Use a free online calculator like Mozo’s very own credit card payments calculator. Simply type in your credit card balance, your monthly repayments and details about your current credit card and it will tell you how long it will take you to pay off your card.
Step 2. Move your debt over to a balance transfer credit card.
Balance transfer credit cards are a great way to save on interest payments. It’s likely that you’re paying over 17% interest on your existing credit card debt. Balance transfer cards usually offer a discounted introductory interest rate on the balance, anything from 0% to 5% for a set period, that you have carried over. Once the introductory period ends the interest rate reverts back to either the standard purchase rate for the credit card, or the cash advance rate so its wise to knock off that debt in the low interest period.
To find the best balance transfer offer for your situation, try out the Mozo Credit Card Health Check tool, it taps our database to find you the top credit cards that will save you the most on interest and fees for your financial situation.
3. Don’t spend!
The last step to clearing your debts and this is integral to your success, is don’t use your credit card until you’ve paid off your debt! If you make any purchases with the card, these will get paid off first because its now the law that payments must go to the debt earning the highest interest. This is good news on one hand, on the other if you don’t tackle any of the transferred debt in the low interest period you’ll be at risk of paying off your initial debt on a higher reverted interest rate. Putting you right back where you started.
How much can you really save with a balance transfer?
Average $3000 credit card debt
If you have the average Aussie debt of $3262 and you’re paying $400 a month on a standard credit card with a interest rate of 17% and $100 annual fee, it would take around 9 months to repay your loan and you’d pay $329 in interest and fees. According to Mozo’s health check tool by transferring your debt to a balance transfer credit card, you could completely avoid paying interest and fees. That’s a saving of $329 that you could put something more useful like 10 cases of beer for the celebration of being debt free at the end.
Here’s 3 great balance transfer credit card offers we found if you have a debt around $3262
Large credit card debts – $10,000 or more
If you’re on the side of the fence that owes a lot more on your credit card than the average Australian then you really need to be savvy about getting the best deal for the time it will take you to pay back your debt. Look for a long balance transfer offer and a credit card that has a low ongoing purchase rate once the balance transfer period is over.
Taking the standard credit card with an interest rate of 17% and annual fee of $100, it would take you 32 months and cost you $2732 in interest and fees to clear a debt of $10,000 if you were making monthly repayments of $400.
By transferring your debt and choosing any one of the three balance transfer credit cards below, you’d see your debt wiped out within 27 months and pay as little as $1089 in interest and fees. That’s saving you $1643 in interest payments, the equivalent of a pat on the back, short break in Fiji (make sure you only do this once you’ve paid off your credit card and can pay for it with your savings!).
Here’s the 3 best credit card options we found if your credit card debt is closer to $10,000
It’s as simple as 1-2-3
- Calculate how long and how much you have to pay off on your credit card.
- Health check your current credit card and choose the option where you’re paying as little interest as possible.
- Don’t spend anymore on your credit card.
And you’ll be on the fast track to smashing your debts and being credit card carefree.