Australians owe $45 billion total in credit card debt. In 2016 to 2017, we paid $1.5 billion in fees alone. Two-thirds of all Australians are in debt, with 14 million credit cards circulating.
It shouldn't be a surprise that nearly one-fifth of Australians have credit card debt they need to deal with. But it's time to regain control of your credit card debt if you've realised you're living beyond your means. Here’s a step-by-step guide that can help you get through this difficult time.
6 Steps to Reducing Credit Card Debt
1. Identify Debt Load
The first step is to figure out how much debt you have. This includes your credit card debt as well as additional debts, such as a car loan, a mortgage or student loans.
Use a written list with as much detail as possible to find out the total debt you have. Make a note of the loans you're paying and how much you owe per month on each loan.
Compare your debt to your salary to make a plan for how long it would take to pay off your total debt. A common time frame for repaying debt is to pay off half of the balance every two years.
2. Prioritise Debt
After you've found out how much you owe, you need to prioritise your debt. Your goal is to eliminate your debt as quickly as possible.
When you’re done calculating the debt you have, arrange the loans in order of smallest to the largest amount. Make sure to include any loans that are delinquent.
3. Allocate Funds and Track Your Progress
You will have to set aside a chunk of your paycheck to cover your debt. First, you need to figure out how much you can allocate each month. You might think that you can budget a regular amount every month, but that's difficult to do. A better way is to divide the amount you owe by the amount of time you have left before you're debt-free. For example, if you owe $10,000 and have 5 years before you'll be out of the red, you'll pay off $2000 each year.
You should find other ways to track how much progress you're making. There are plenty of apps and tools to do this.
4. Pay More Than the Minimum
The first step to becoming debt-free is paying more than the minimum due. If you only pay the minimum amount on each loan, it will take twice as long to become debt-free.
5. List All of Your Income
Think of all the ways you can bring in additional income. Can you get a second job? Can you cut back on your work hours? Can you move to a less expensive house?
Also, if you can cut back on your spending, you can make a more significant monthly payment or shorten the time it takes to pay off debt. The less you spend, the more money you have to pay off your debt.
6. Set a New Goal
If you're working to pay off debt right now, you should set a new goal. What do you want to achieve?
You could set a goal related to your debt if you're having trouble meeting your payments. For example, you might want to set a goal never to miss a payment again. Or you could develop a plan to pay off your debt in 12 months.
You might also want to set a goal related to your credit score. For example, you could develop a plan to get a credit card limit of $10,000 or increase your credit score.
If you're struggling to pay off debt, then you might need to change your approach. The 6-step plan above will help you start making progress. Yes, it will take time, but you'll get there.
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