7 Ways to pay off your credit card debt

Some simple strategies could help you to pay off credit card debt, and get your finances out of the red and into the black.

Mounting credit card debt can be stressful. Here are seven ways to clear your card’s balance. Try just one or mix and match strategies to fast-track your way to paying off credit card debt.

Why credit card debt matters

Before we get to the nitty gritty of paying down credit card debt, it’s worth pointing out that credit cards could be useful for some people. They could be a source of emergency funds, they could offer a chance to earn reward points, and, if you can pay off purchases within the interest-free period, it could be possible to avoid paying card interest altogether.

However, if you are facing rising credit card debt, it’s worth taking early action to bring the balance back under control. Credit cards can come with high interest rates, and the potentially ever-increasing interest bill can make it difficult to get on top of the balance.

Explore further: How does credit card interest work?

Credit card debt and late payments can impact your credit score, which could make it harder to be approved for future loans, such as a home loan.

If the amount owed on your card is starting to blow out, it could be worth checking out these seven ways to help get your credit card debt under control.

1. Put your card on ice

If you’re aiming to scale back card debt, it’s not a bad idea to tuck the credit card away for a while and remove it from your digital wallet. This can help to curb spending at least until the outstanding balance reaches a more comfortable level.

If you can resist the temptation to spend more, NAB says that holding onto an old card rather than closing the account altogether can help you maintain a healthy credit score.

2. Pay more than the minimum

Sticking to a card issuer’s minimum repayments may be a plus for your budget, but it can drag out the time taken to clear the balance.

That’s because minimum repayments can be as little as 2% of the card balance, which is a lot less than the card interest rate you’re likely to pay. Paying the bare minimum each month can see your balance grow at a faster pace than you’re paying it down by.

Paying more than the minimum lets you turn the situation around. Every extra dollar paid helps to whittle away the balance owed. This helps to lower next month’s interest charge, and in this way you can start to turn the tide and get ahead with credit card debt sooner.

If you’re struggling to find extra cash for repayments, our budget planner can help you work out where you can cut back spending to free up additional funds.

3. Make early payments

You don’t have to wait until your monthly statement arrives to make a card payment. Cardholders can usually make a payment at any time (especially through online banking). This further helps to reduce your credit card debt, and lower monthly interest charges.

Making payments before your statement arrives can be a handy option if you have a bit of spare cash. However, you’ll still need to pay the total minimum payment each month in order to avoid a late payment fee.

4. Make payments on time

Missing a credit card repayment can see you slugged with late payment fees. These can be around $15 per missed payment. It’s not a huge sum, however it does add to your card balance, and continually running behind with payments can damage your credit score.

5. Focus on higher rate cards first

If you have more than one credit card, you may decide to order the balances by the interest rate that applies to each card. As a general rule, focusing on the card with the highest rate can see you save more in interest. For example, aim to pay off a card with a rate of 20% first, before turning your efforts to a card charging 15%.

If you have multiple cards with a similar rate, paying off the smallest balance first can be a great way to stay motivated to tackle the bigger balances.

MoneySmart advises that once you’ve cleared a few cards, think about scaling back the number of cards you have. Holding only those cards you really need can also let you save on annual fees.

6. Consider a balance transfer

Another option to think about if you’re paying down a large credit card debt is a balance transfer offer. This involves paying out your existing credit card with a new card charging a special low, or even zero, rate for an introductory period.

A balance transfer deal may give you breathing space to get ahead with credit card debt if you knuckle down and pay off the balance while low or zero rates apply. It’s important to consider that any balance owing after the introductory period expires can attract high cash advance interest rates. This could mean that you risk experiencing the same issue with your original card –  a mounting interest bill on top of your debt.

Explore further: How does a balance transfer credit card work?

The transfer deal best suited to your needs can depend on how much you owe on your original credit card. Across the Canstar database, some balance transfer offers charge zero interest for 12 months, which can be an ambitious timeframe to pay off a substantial debt.

If it’s unlikely you’ll be able to pay off the old credit card debt within a short period, you may prefer a card that comes with an extended interest-free or low rate period. The key is to be realistic about how long it will take to clear the outstanding balance. Use your budget as a guide to what you can repay and aim to stick with this.

Compare Balance Transfer Cards

7. Talk to your card issuer

If it’s proving a struggle to get on top of card debt, or you can’t pay your credit card bill, it’s important to get in touch with your bank or card issuer. Ideally, aim to do this before you miss a repayment as this may be recorded on your  personal credit history and impact your credit score.

Most card issuers will work with you to negotiate a more manageable repayment plan. Westpac, for example, has a feature called SmartPlan, which splits credit card repayments into instalments (conditions apply).

If you are having difficulties with personal debt more broadly, you may want to visit the National Debt Helpline website or call the National Debt Helpline on 1800 007 007. Their professional financial counsellors provide free and confidential advice.

Keeping your credit card debt manageable

With time and perseverance, it is possible to pay off credit card debt. To help things stay that way, you may want to ask your card issuer to lower the credit limit on your card. It’s a step that can prevent you reloading a freshly cleared card with more purchases.

To lower your credit limit, contact the bank or card issuer and request a reduction in your credit limit. It usually takes just a few days for the new limit to be in place.

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