If you go onto www.moneysmart.gov.au you can see a real-time debt clock which is rapidly increasing every second. The clock shows that at this current minute Australian’s owe over $37.5 billion on credit cards. This works out at an average of $4900 per cardholder.
With an interest rate between 15 and 20%, this means the average cardholder is paying approximately $800 in interest every year. I do not know about you but these figures are scary.
As we near the end of 2012 it might be time to seriously take action against any outstanding credit card debt so you can start 2013 off feeling good about your finances.
Here are six tips that may help you get on the debt reduction train.
Work out what you owe
First things first you need to sit down and add up all your debts. I think this is one of the biggest mistakes people make-they don’t actually know what they owe and where. It might be confronting but that will only help you. Make it positive rather than negative. Ok so you have debt, now what are you going to do about it.
Doing this will also help you work out a budget. It is only by understanding your expenses that you will know how much you have to go towards your debts. You also need to look at what the terms and conditions are on your cards or loans eg interest rates, minimum payments, fees and charges etc. Once you have this all sorted you can work out your plan.
Try using the debt snowball plan
Often people get very discouraged trying to reduce their debt, finding that no matter how hard they try their debt seems to stay or keep growing.
Most financial advisers will tell you to pay off your highest debt first and move down to the lowest. Try the opposite using the Debt Snowball Plan. This method has been proposed by financial author Dave Ramsay and is focused on our behaviour rather than the debt.
By paying off your lowest balance quickly first you can see quick wins, prompting you to keep going.
Not a method for everyone, but may help get you going. Read my previous article on how to make a debt snowball plan.
Talk to the credit card company
Whilst some of the banks will not budge on changing your credit card fees and interest rates some will if you explain your situation. This may involve waiving annual fees or other late payment charges or it may include working out a repayment plan with you. Banks all have policies regarding financial hardship-all you have to do is ask.
Start sacrificing money
I don’t care if you don’t want to go without your morning double mocha frappuccino. If you are not willing to make some sacrifices to get rid of the debt you made you aren’t going to get anywhere.
Pick 2-3 things you can start going without whether this is the coffee, takeaway, magazines, Foxtel etc. Just changing a few small things could give you a few extra thousand dollars to whack straight on the debt.
Work out where you can get better deals
Start investigating and shopping around where you can get better deals. This goes for general shopping but in particular look at your insurances, gas and electricity, phone and internet.
Most places now days are competing for business so will often give you a better deal than what you have. Once you have done this, take all the extra cash you saved and dump it straight onto your debt.
Find extra money
You may laugh at this one but if you are in dire straits you may have to start thinking about where you can pick up some extra cash. Whether this is selling un-used items on eBay, picking up some weekend work or even going on craigslist to find some random but extra jobs, the more effort you put in now to reduce that clock the better.