When I was at university a friend told me about a credit card that a bank was offering specifically for students. I thought ‘fantastic I could use it to go buy some new clothes or anything else I could dream of’-in my mind it was almost like free money.
My parents had many credit cards and because I did not understand them, I did not think of them as a potential hazard. So once I found that I could easily apply for one when I was 18 I did. And I maxed it out straight away.
I thought to myself ‘a $500 credit limit isn’t much, I should apply for a higher one’. In my mind I thought ‘I will be fine I will just make sure to pay off everything I purchase’. I was wrong. I quickly found that my credit debt swarmed to the point of maxing out a $25,000 card.
Why I had been given a $25,000 credit limit by the bank when I was a full time uni student who barely made that amount in a year was beyond me. At the time I didn’t care, but now when I look back at it I realise they had failed miserably in their duty of care and responsible lending codes.
I did start to worry for a little while but then I discovered the idea of balance transfers. I thought ‘this is a good way for me to pay off the debt with lower interest and I can finally organise myself’. Great in theory however, I did not shut the original card and once again I racked up another debt trying to stay afloat on my minimal income.
By this point it was not just luxury items I was putting on there, it was things like food and petrol which I could not afford. Eventually after going through different banks and different balance transfers it had gotten to a point where it had to stop. I was ashamed of my situation, depressed and scared that I had ruined my life. Luckily I had someone who could help me get organised and if it was not for them I am sure I would be a lot worse.
Some of you may be in similar situations with no one to help and support you- I can understand the desperation you may be feeling. These tips may or may not help but the important thing to remember is you are not alone in your experience.
However, to improve it you need to be dedicated to resolving it.
Here are my tips and tricks.
If your debt is not so bad try finding a balance transfer deal
- Go for one with the lowest interest rate, or a length of time that will suit your ability to pay off the debt.
- BUT do not spend money on the new card. When you make payments they first go towards paying the balance transfer amount, so the amount you have spent will never get paid till the balance transfer amount is gone. The purchase rate is often a lot higher and because it is not being paid off, you will be getting loads of interest charged
- Make sure if you do a balance transfer to close the card you are transferring from to avoid have two potential debts
Find a personal Loan to consolidate your debt
- Make sure the interest rate is reasonable Stick to a repayment amount that you can afford
- Set up a direct debit so that the repayments come directly out and you do not fall behind as this will affect your credit rating
- Be aware of any penalty rates for paying off the loan early
- Do not just look at the interest rate but make sure you look at the comparison rate which takes into account any set up fees and associated monthly fees
If you have a mortgage, try and consolidate your debt into a supplementary loan
- This can often be a better option as the interest rates on home loans are generally less and can therefore be more affordable
- It can also mean it may make your finances simpler as it is all bundled into one making it easier to budget your money
- You can opt for a longer time to pay off your loan (mortgages can span up to 30 years) which can be good if you have a large debt that you will not be able to pay off earlier
Close the cards!
You can also close down your credit card with the debt still on it. This is a good way to forcefully stop yourself spending money.
Most banks will also allow you to work out a repayment plan if you are experiencing financial hardship.