It’s no secret that a large percentage of Australian’s are drowning in credit card debt. Believe it or not, there are over 16 million credit cards in Australia as of 2018, and that number is only rising. This means there’s also a national debt of accruing interest of over $33 billion. Yes, that’s billion not million!
Where did all of this debt come from? Unfortunately, the leading cause of debt today is a lack of savings. Many households across the nation struggle to make ends meet. Credit cards are all people have to fall back on when an emergency expense pops up unexpectedly.
In addition, there’s a culture of consumerism everywhere you look. Everyone wants to keep up with the Joneses without the bank accounts to back it up. While credit cards might be able to afford you the latest and greatest tech, all of those swipes come back to haunt you later.
How are you expected to pay off this credit card debt fast? While the best way to make a positive change is to improve your financial habits, we could all use some words of wisdom from the top names in business and finance. Here’s the best expert advice on how to pay off your credit card debt fast.
1. Beware of Interest
Ric Edelman, author of The Truth About Money, urges everyone to pay attention to interest rates when it comes to credit cards. We all know how easy it is to rack up the charges, but the problem really comes when you’re not able to pay it off in full each month.
He says, “The interest rate that credit cards charge is very high — higher than you’d reasonably be expected to earn in an investment. And it can very quickly become a downward spiral as not only the money you don’t pay off is charged interest, but interest is charged interest.”
What you can learn from this: Always read the fine print. If a credit card seems too good to be true or offers a strikingly low intro period, it probably will drive up the cost later on. There’s no such thing as a free lunch, so make sure you know what you’re getting into when you sign up for a new credit card.
2. Use the DEBT Plan
Marcus Garrett is the money expert behind the Paychecks & Balances podcast. Not only is his podcast a great resource for anyone trying to be more financially literate, but he also has a simplified payoff plan known as DEBT. Here’s what the acronym stands for:
- D – Define the problem. Before you seek help, you need to know what the problem is with your spending habits. Garratt recommends pulling up your credit report and bank statements and doing the math for yourself.
- E – Establish a plan. Next, you need a plan with a clear goal. Maybe you want to get out of debt over the next five years. Use a debt calculator to see how to do just that, or work with a debt specialist who can consider your unique situation.
- B – Budget. Now that you’ve started to create a plan, it’s time to budget. Garrett recommends using 50% of your income on needs, 30% on wants, and 20% to pay down your debt. This is the 50/20/30 budget rule, and it’s highly effective.
- T – Trust the process. Finally, you need to trust that your plan will work even when times are tough.
What you can learn from this: With the DEBT method, there’s a step for every part of the pay off process. If you skip a step, such as defining the problem, you’re more likely to fall into the debt cycle again in the future.
3. Avalanche vs. Snowball Method
When you first get started with credit card debt payoff, you’ll hear about the avalanche and snowball methods. The avalanche method is when you pay off the highest interest balances first, which will lower the amount of interest you pay over time. On the other hand, with the snowball method, you pay your lowest balance first and gain momentum like a snowball.
So which method is best? According to Simon Blanchard, a business professor at Georgetown in the United States, the avalanche method isn’t always the best even though it saves you money. He argues it’s more motivating to see a chunk of debt removed from a small account. It’s that motivation that “makes consumers work harder at applying money to their debts.”
What you can learn from this: There is no one-size-fits-all when it comes to credit card debt. If you’re more concerned about saving on interest, the avalanche option is likely best for you. However, if you need some extra motivation, feel free to start with the snowball method.
Say Goodbye to Credit Card Debt
These experts above know what they’re talking about. Through their experience with credit card debt and helping others recover their finances, they’ve mastered the art of smart money habits. Change starts with you, so take these pieces of advice seriously.
If you’re struggling to create a debt pay off plan, you might need extra help. You don’t have to go on this journey alone. The experts at Debt Busters have over 10 years of experience helping Australians overcome their financial hardships, one solution at a time. From debt consolidation to repayment options, there’s a plan out there that’s right for you. Call us today on 1300 368 322.