Credit card debt sucks. If you’re a spender (it’s OK, I was too), having a huge credit card balance can make you feel like you’re on a hamster wheel of debt.
You make payments each month, then spend a little and you’re right back where you started.
Or worse, you owe more now than you did before you made last month’s payment.
We all know banks make huge money from credit card interest and late payment fees, so it’s in their best interest to tempt you with wine club memberships stuffed in the same envelope as your credit card statement.
Or ‘premium’ cardholder experiences which cost a boatload of money.
If you’ve started to question why you’re getting nowhere fast with your credit card bill, it’s time to make some changes.
You can absolutely kill that credit card debt with some willpower and strategy.
Here’s how I did it:
1. Switch to a zero or low-interest balance transfer offer
First things first. Paying a high-interest rate on your credit card debt will add time to your debt repayment journey.
If you can, try to find a balance transfer offer with a new credit card provider.
I’ve seen 0% or 1% interest rate offers for balance transfers for the first 12 months.
How to use a balance transfer:
Let’s say you owe $5000 on one card and you are approved for a balance transfer with a 0% interest rate.
Your provider will do some work in the background to transfer the funds across and you will now get a new credit card account carrying the full balance.
At this stage, you must close the old credit card account.
Your old provider won’t close the account just because you have a new account elsewhere.
Remove the temptation and cancel your old credit card account immediately.
Most balance transfers only offer low-interest rates on the balance you transferred across, in this instance, that is the $5000.
That means they will charge you the regular interest rate for an additional transaction made on the card.
It gets complicated managing all these different interest rates so my rule (and I recommend it be your rule too) is to never make a purchase on your balance transfer card.
Try not to think of it as a credit card, with credit available. It is now a personal loan, where you make repayments and reduce your debt. The next step will explain how I did this.
2. Cut up your card, or freeze it in a block of ice
Take that shiny new credit card and slash it to pieces.
Or freeze it. Or give it to your Mum/Partner/Trusted Confidante.
I was such a tricky spendaholic, that I would always find a way to justify to myself making just one $14 purchase on the card.
It’s not worth it. The only way I was able to eliminate my balance was to remove the temptation to spend further.
3. Make your payments in cash
Have you ever held a big wad of cash in your hands?
It’s pretty normal for most of us to do everything electronically now, but the feel of cash in your hands is powerful.
Handing over hundreds of my hard-earned dollars in cash stung, yet it was the most powerful catalyst for changing my attitude toward using credit cards for everything.
One of the best tips I have for changing your mindset towards credit cards is to make your monthly repayment in cash at the bank.
I stumbled across this tip when I missed the cutoff for an online payment and had to pay cash at the bank on the day my bill was due.
4. Reduce your credit limit
This technique won’t work for everyone and I have heard rumours that it can affect your credit rating, but getting out of debt was a bigger deal to me than my credit score so I took the risk (and incidentally, I have not been rejected for credit since).
I would call the card company/bank EVERY TIME I made a repayment and have my total limit reduced.
So if I made a $100 repayment, I would have them reduce my total credit limit from $3000 to $2900 etc.
The first few times they tried to talk me out of it but after a while, they gave up.
This technique removed that cushion of ‘available funds’ and helped me to look at my credit card debt like a regular, reducing loan.
Reducing the limit on your card is the easiest way to avoid going into further debt by spending the repayments you’ve just made.
5. Set a massive financial goal and make a plan to achieve it
The absolute best way to slay your debt is to set a big lifetime dream goal and make a plan to achieve it.
Your dream may be to buy a home, or start a business, or travel (which was/is mine).
Think back to what it was that debt was holding you back from and go for it.
My personal goal was to save $10,000 to backpack around Europe with my best friend. I wanted to be free of credit card debt while I was travelling, so paying off my credit card was the first step to making that trip happen.
I became frugal, worked extra jobs on the weekend, did paid surveys and market research in the evenings and channelled everything into clearing my credit card balance. Once the credit card debt was paid back, I put the extra funds towards paying back my personal loan and eventually become completely debt-free.
Eliminating credit card debt was the best thing I ever did. It set me up as a saver, something I thought I would never be and has allowed me to travel the world and live my dream life.
Right now, being debt-free (other than a mortgage) means I can stay at home with my kids and not worry about needing to work outside the home.
I now use credit cards as a tool, paying my balance in full every single month so I never pay a cent of interest.
It took a lot of hard work and discipline but I promise you it is completely worth it.