Conquer credit card debt

Ifeel like I’m drowning!’ my friend Ina said, explaining that she’d used a credit card to help her daughter out of a tough situation when her relationship broke down.

Now, two years later, she was still struggling to pay off the debt.

I could relate. Credit cards may be great if you’re able to clear the balance each month, but they can quickly become a revolving door of stress and debt if you can’t.

There’s no quick and easy fix, but these tips might help if you’re in a similar situation.

MAKE A PAYMENT PLAN

Visit moneysmart.gov.au and go to their credit card calculator. When you input the amount you owe on your card, and the interest rate, the calculator tells you how quickly you can pay off your card by increasing your repayments.

For example, on a $3000 credit card debt with an 18 per cent interest rate, if you pay the minimum repayment, starting at $60 each month, it will take over 26 years and cost $6862 in interest.

If you make payments of $148 each month you’ll clear the debt in two years and only pay $541 in interest.

As you pay your card down make sure you ask your financial institution to reduce your credit limit, so you can’t be tempted to spend it again.

MULTIPLE CARDS?

If you have more than one card it can help to focus on paying down one at a time.

You might choose the one with the lowest debt first, because being able to pa it off quicker can help make you feel like you’re making progress. Or you might choose the one with the highest interest rate to help reduce the overall amount you have to pay.

Either way, continue paying the minimum amount on all your cards then put whatever you have left in your budget on your chosen card.

ZERO INTEREST

Another option is to apply for a balance transfer to a zero-interest credit card.

Financial institutions often offer new customers a credit card that has an interest-free period. As long as you pay off the debt within that period, you’ll save money.

STILL STRUGGLING?

Call your bank and talk to them. For financial hardship cases they may be able to put your interest on hold for a while or work out a payment plan.

You can also call the National Debt Helpline on 1800 007 007, or NZ MoneyTalks 0800 345 123 for free financial advice.