Have you ever dreaded opening your mail because you don’t have the money to pay the bills you’ll receive? Do you ever put off opening your mail just because you can’t face it?
Financial difficulties are very stressful to deal with and one of the most common debts are those associated with credit cards. For many people, credit card debt is a never-ending spiral that is hard to control.
Some people have unmanageable credit card debt because they have reached the credit limit on one card and go on to do the same with a second or third card. In this scenario, its not long before the level of debt gets beyond their capacity to pay it back.
Does this sound like you? If your credit card debt is getting out of control, it’s important to act quickly. Taking action sooner, rather than later, may stop a small problem from becoming a big one.
Here are 5 simple steps to getting on top of your credit card debt:
Step 1: Make a list of all your debt
Make a list of all your debt, including your credit card debt, and the minimum repayments required. Simply doing this will give you an overall picture of your situation and will help you take stock of your debt relative to your income. This Is often a hard step to take, and one that many people put off doing.
If you find yourself unable or unwilling to take Step 1, ask a family member or friend to help you.
Step 2: Work out the level of repayment you can afford each month
Relative to your income, how much debt can you afford to pay off each month? Is it more or less than the minimum repayment required? If more, then make the repayments as high as you can afford.
You could also consider changing your provider to one that offers an interest-free period, transferring some or all of your debt onto the interest-free card, to help you get ahead. This will involve you getting yet another credit card – so beware this step! You will need to be disciplined.
If your income will not cover your debts and credit card repayments then it is time to talk to your credit card provider/s or seek help. Go straight to Step 5.
Step 3: Make the repayments
Pay off as much as you can each month to reduce the interest. Be disciplined about keeping up the repayments.
Pay the card with the highest interest rate first, as this will save you the most money. Then make at least the minimum repayments on all cards, focusing on the one with the smallest debt so you can pay off the total amount of that card.
Make sure you pay at least the minimum monthly amount and on or before the due date so that you avoid being charged late payment fees.
Don’t spend anymore on the card with the highest interest rate and limit your spending to essentials on any other cards.
Over time work towards paying more than just the interest on each card until you have cleared the debt.
Step 4: Use only one card
Your ultimate aim is to get to the stage when you are using only one of your credit cards.
As you pay down each credit card to a zero amount – close it. It is important to close the account (not just cut up the card) because you may be paying fees for a card that you no longer use. Close the account by contacting your card provider.
When you can, stop using all but one credit card and use it only for essentials and online payments.
Step 4: Lower the limit on your card
Lower the limit on your one remaining credit card to cover only the essentials and any online payments.
The limit should be no higher that what you can repay within three months. Your statement will give you information about how long it will take to pay off the entire balance.
When you get to this Step, remember you pay interest on your spent credit. Therefore you should aim to pay off the entire amount each month, wherever possible. So spend only what you can afford.
If you’re worried about spending too much, consider using a debit rather than a credit card. A debit card takes money from your account to pay for purchases. If there is no money in your account, you can’t make the purchase.
Step 5: Seek help
It is important to take action now – before things get worse.
You have already taken steps 1 and 2 and you have a clear picture of your particular situation.
If your income will not cover your debts then it is time to seek help. There are people who can help and who will explain the options that are available to you.
1. Talk to your credit card provider who may be able to help you to work out a plan to get yourself back on track. Many credit card providers can provide you with a hardship variation that will allow you more time to pay off the debt.
2. Talk to a financial counsellor – there are free services offered by community organisations, community legal centres and some government agencies. For a list of free financial counselling in your area, see https://www.moneysmart.gov.au/managing-your-money/managing-debts/financial-counselling.
3. Seek help from a debt agency like Debt Agreement Solutions – they can provide services to help people struggling with debt. These are not free services – they will charge their fees either up front or as a commission on a debt consolidation loan.
4. For telephone counselling and emotional support, you can call Lifeline on 13 11 14.
Money problems are very stressful but you are not alone and you are not without options. So take action today.