Owing money on your credit card can sometimes be stressful. Here are some tips for paying it off faster and saving money.
If you owe money on one or more credit cards, you’re not alone. According to the Reserve Bank of Australia (RBA), Australians collectively have around 14.7 million credit cards and owe around $33 billion on them. Almost $18 billion of that money is accruing interest – and the average credit card interest rate is over 18%.
So if you have a credit card balance that you’re paying interest on, it’s worth seeing if you can reduce the amount you owe.
1. Work out how much you owe and how much interest you’re paying
If you have more than one credit card, add the balances together. Check the interest rate of each card, and look at your past few months’ of transactions to see roughly how much interest you’re paying each month.
If you can pay off your credit card debt, those interest costs will disappear.
2. See if you can get a better deal
The interest rate charged by credit cards can vary by more than 10%. So check whether you could switch to a different credit card and save money. See choosing a credit card for tips about how to get the best credit card deal for your situation.
Consider the pros and cons before getting either a credit card balance transfer with a lower (or zero) interest rate, or transferring your credit card debt to a personal loan.
3. Work out how much you can pay each month
Knowing what you spend your money on can help you find any areas where you might be able to cut back. Any savings you can find, you can use to pay down your credit card debt.
Set up your budget and save it online or use our Excel budget spreadsheet.
4. Pay as much as you can each month
If you can make higher repayments each month, you’ll pay off the debt faster and save money. If you have multiple credit cards, plan to reduce the number you have.
Try setting yourself a goal to pay off one card at a time. Start with either of these:
- Smallest debt
Paying off the card with the smallest debt first helps motivate you to keep going. Once you've paid that off, move onto the next smallest debt. - Highest interest rate
If one of your cards has a much higher interest rate, consider paying off that one first. Then pay off your other cards one by one.
Use our credit card calculator
Work out the fastest way to pay off your credit card.
5. Reduce your credit limit
To avoid the temptation to overspend on your card, ask your credit provider to reduce your credit limit. You can do this online, by phone or by visiting a branch. In most cases, it takes between one and two business days.
If you need to increase your limit to buy something special, aim to pay it off quickly. Then reduce your limit again to a manageable amount.
As well, consider cancelling each credit card as you pay it off, and perhaps keeping just one for emergencies.
6. Pay on time
Check your credit card statement for the due date and make sure you pay on or before that date. By doing this, you'll avoid paying extra interest or late fees and also help keep your credit score healthy.
An easy way to pay is by direct debit or automatic transfer from your bank account each month. Set it for the day after your pay goes in, so you have enough money to cover it.
You can also set up a reminder to pay in your calendar.
Paying off your credit cards can take a while. If you need help, contact your bank or credit provider or talk to a free financial counsellor. Taking action early stops a small money problem from getting bigger.