How to manage credit card debt

If you’re plagued with credit card debt, you’ll face a poor credit utilization ratio, bad credit, and a limited cash flow which can worsen the cycle of debt. If you’re ready to take control of your finances and pull yourself out of debt, you’ll need to choose the right payment strategy for your personal circumstances. 

So, what are the best ways to manage and reduce credit card debt? 

Let’s get to the following commonly asked questions: 

• What is the most effective way to manage credit card debt?
• What are the 5 ways to pay down credit card debt?
• What is the quickest way to get out of credit card debt?
• How much credit card debt does the average Australian have?

Q1. How much credit card debt does the average Australian have?

According to an August 2022 statistic, the average credit card debt is reportedly $2907. This is partially due to the fact that less credit cards are currently in circulation, while debit cards have increased in popularity. 

However, we predict that credit card debt could increase throughout 2023 due to rising inflation rates, with more and more Australians turning to credit card companies to pay for living expenses and bills. 

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Q2. What are the 5 ways to pay down credit card debt?

1. Avoid minimum payments: pay as much as you can every month 

The most effective way to pay off your credit card balance is to make higher monthly payments. This will not only help you to debt faster, but will save you significant cash in the long term as you’ll pay far less interest on your outstanding balance. 

While minimum payments can provide immediate monetary relief, as you avoid paying high monthly repayments, you’ll end up paying a higher amount of interest and will stay in credit card debt for years. 

If you’re struggling with managing credit card debt and making the minimum payment, we recommend speaking to a financial advisor, or downloading our social finance wellness app, so we can guide you on what steps to take to pay down your debt. 

2. Always pay on time 

Paying off credit cards on time stops you from paying high late fees or increased interest, while helping with credit repair. If you struggle with debt management and have previously missed credit card repayments, we would recommend setting up a direct debit or an automatic transfer which will be taken out of your account every month. 

To avoid going overdrawn, set up your direct debit to leave your account on payday - you won’t even miss the money! 

If you don’t want to pay off your debt through direct debit, you can always set a reminder to pay on your phone calendar. 

3. Cut back on credit card spending 

This goes without saying, but one of the only ways to pay down debts is to reduce your spending habits and stop making payments using your credit card. By actively working on debt reduction and limiting your monthly outgoings, you’ll reach your financial goals much faster. 

4. Reduce your credit limit 

 One of the best payoff strategies is to reduce your credit limit to stop you from overspending on your credit cards. This will not only help you pay off your debts faster, but will also help you to improve your credit scoring. 

To reduce your credit limit, simply talk to your credit card issuer, either through your online banking, on the phone, or in branch. 

5. Consider a balance transfer credit card

A balance transfer credit card allows you to switch your existing balance to a new card in order to get a lower interest rate. It can be a fantastic strategy if you’re plagued with high interest, which is stopping you from achieving a fast credit card payoff and improving your credit score. 

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Q3. What is the most effective way to manage credit card debt?

While there are many effective ways to consolidate debt, we would recommend the debt snowball method. This debt relief strategy involves paying off your debts from smallest to largest so you gain momentum - hence the snowball method. 

The idea is that once the smaller debts are paid, you take the money you would’ve used to pay off those debts, and pay off your larger debts faster. This is one of the best methods for debt consolidation, allowing you to pay off debt and stay in control of your money.

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To put this into action: 

1. Write a list of your debts from smallest to largest. This could include any large debts such as your student loans or mortgage.
2. Make minimum payments for all your other debts, while paying as much as possible off your smallest debt on the list. 
3. Repeat the process until each debt is paid in full. 

Similarly to the snowball method, taking out debt consolidation loans can help you reorganise your debts into one larger payment. However, this is only beneficial for debt settlement if you can get a lower interest rate. 

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Q4. What is the quickest way to get out of credit card debt?

While all debt management plans will help you become debt free and achieve your personal finance goals, some are quicker than others. For the quickest method to pay off debts, try: 

• Debt avalanche methods. This involves paying off the credit card accounts with the highest interest rate first. Once this loan is paid off, you can move on to paying off the next highest interest loan until all your debt is paid. 

• A home equity loan. If you’re a homeowner, a home equity loan allows you to access the money invested in your property, and only needs to be paid once the house is sold. You can access your funds with a tax-free lump sum, which can be used for the purposes of debt consolidation. 

• Taking out a personal loan. Personal consolidation loans allow you to pay off your existing debts, simplify your payments, all for the purposes of saving money on interest. To work out potential interest rates, use a personal loan calculator. 

• Consult a credit counselor. If you’re still unsure on which debt management plan is best for you, we would recommend consulting with a credit counselor. 

In Summary 

Consolidating debts is a goal for many people, and can go a long way in improving your financial health and improving your quality of life. To get out of credit card debt, we recommend adopting a financial strategy covered in this article, such as debt snowball method, the debt avalanche, or by taking out a personal loan. 

For more guidance on becoming debt free, read out article ‘Tips for becoming debt free in 2022’ here.