How to manage your credit card debt

Racking up a credit card debt is a serious matter, yet many Australians struggle to control how much they put on their cards and fail to understand the consequences of not paying their bill on time.

illion's recent Consumer Credit Expectations Survey reveals that over a third of families expect difficulties managing existing debt levels over the next three months, yet nearly the same number of families plan to apply for new credit or a credit limit increase.  In particular, 46 per cent of low-income households anticipate difficulties managing their debt levels but more than 40 per cent of this proportion plan to use credit cards to cover their costs of living over the next quarter.

These statistics are indicative of the level of financial stress many households across Australia are facing relating to credit card usage. However, this ongoing concern can be easily addressed if consumers take the time and effort to manage their debt levels and use their credit card responsibly.

Here are three ways you can do so:

  • Spend within your means
  • Cut back on your cards
  • Make the full repayment each month

Spend within your means

It is all too easy to constantly swipe your credit card at retail outlets and online, given the ease of transactions in today's technology age. You can fall into the trap of spending beyond what you earn, particularly if your credit card payment dates do not coincide with when you receive your paycheck. For example, your monthly income is $6000 but you have racked up $8000 on your credit card before your salary is deposited in your bank. This is an excess of $2000 that you may not be able to pay off in time if you don't have an alternative pool of funds.

An obvious solution to this problem that is often overlooked is to lower your credit card spending, or spend less than what you earn. This can be achieved by paying by cash or via debit card - this way, even if your bank account balance hits rock bottom, you won't be in debt.

You should also make it a habit to check your credit card balance online or keep an expenses diary so you can also easily lose track of what you spend.

Cut back on your cards

If you have more than one credit card, it's a good idea to reduce this to just one card so you can easily monitor your spending, as having multiple cards with multiple payment deadlines can be very confusing. Many people turn to applying for a new credit card once they reach their limit, which should be avoided at all costs, as this can perpetuate a vicious cycle of debt.

Another good way to reduce the amount you spend is to apply for cards with no annual fee. There are a range of basic cards on the market that have good rewards programs at no cost.

Make the full repayment each month

It is a good habit to pay off any outstanding balances each month and not just the minimum repayment. This is because the minimum repayment on the credit card is usually a fraction of the amount you owe them, meaning that your debt will only increase in the long run if you don't pay off the full amount. The interest rates that accrue on your unpaid balance will also further multiply your debt levels.

It is important not to overlook your credit card debt as this can have a severe impact on your personal finances and future credit applications, as an inability to pay off credit card debt can result in a default and damage your credit score.

Check your credit report regularly for any defaults and to determine your financial health »