The Great Pyramids were built in 20 years, the Sydney Opera House in 14 years and the Coliseum only took eight years. But if you’re only making the minimum monthly repayments on your credit card did you know it could take you more than 100 years to repay your debt?
In fact Mozo has found that 49% of cards in our database would take more than a century to pay off if customers only made the minimum monthly repayment on the average credit card debt of $4538.
But the good news is, your debt doesn’t have to have a longer life than you. Here are some ways you can get out of the red and into the black for good.
Getting debt free
Always pay more than the minimum
Simply making the minimum repayments on your credit card to get you off the hook for another month may seem like an enticing option but it will be extremely difficult to become debt free this way. If you’re only making the minimum repayment most, if not all, of your payment will go towards paying the interest rather than reducing your card’s balance.
Say you’re making the minimum monthly repayment on a card with a balance of $4538 (17.20% interest rate, $108 annual fee), your monthly repayment would be around $90 (2% min). According to Mozo’s debt repayment calculator it would take you 7 years and 7 months to pay off and cost you a whopping $4460 in interest and fees.
Now if you bumped up your repayments to $180 a month, you’d pay off the card in just 2 years and 8 months and only pay $1462 in interest and fees – that’s a saving of $2998 as well as being debt free 4 years and 11 months earlier.
Transfer your debt to a BT Card
Moving to a 0% balance transfer card could put you on the fastest and cheapest route to a debt free life if your budget can handle even higher monthly repayments so that you can pay back the debt within the interest free period.
With a 0% BT deal for 12 months, you’d need to make monthly repayments of $400 to be debt free within the year.
If you don’t think you will be able to pay back the balance in full during the balance transfer period it is important that you check the revert rate of the card. You don’t want to find that the balance owing goes back to a higher interest rate than the one you were on. And with any BT deal, it is also important not to make new purchases on the card or your repayments will go towards paying these off not your debt.
Find out how much you will save by switching with Mozo’s Switch & Save Calculator here.
Staying debt free…
Here are some foolproof ways to ensure your (credit card) debt free life isn’t over before you can enjoy it.
Reduce your credit limit
Set a credit limit that reasonably fits your financial situation. You want to remove any temptation to make unnecessary purchases (aka an impromptu Balinese getaway) but it should give you enough cash leeway should any emergency arise.
Just be aware if you’re planning to lower your credit limit you should check with your financial provider if any minimum card limits apply.
Also be sure you opt out of bank promotions that automatically send you offers to increase your limit.
Opt for a debit card
Rather than paying with credit, give your debit card prime position in your wallet. If you’re using your own hard earned rather than the bank’s, you’ll be more inclined to rein in your spending. Plus, you won’t lose sleep over any nasty interest rates hikes that can easily spiral your debt out of control.
Pay balance in FULL each month
Most cards will have between 44 – 62 interest free days so if you pay your balance off in full each month you’ll get to enjoy interest free spending. Set up an automatic deposit from your account to ensure you never miss a payment date.