Tips to reduce your credit card debt

High credit card debt is a major problem for many Australians, but there are certain actions you can take to start reducing the level of money you owe on your cards. Credit cards can be a convenient form of payment when making certain purchases, but they have to be used sensibly to avoid accumulating excessive debt.

The following suggestions can help reduce the amount you owe on your credit cards:

1. Prioritise your credit card debts

Prioritising your debts is a handy concept that will help you reduce your credit card debt. This applies if you have more than one credit card. Instead of making additional payments on all your cards, why don’t you start by directing your surplus cash to the credit card with the highest interest rate? When you are done with one credit card, you can proceed to the debt with the next highest interest rate. Importantly, as you reduce debts on these credits cards, you also have to ensure you have sufficient cash to avoid creating new debts and falling back into the red.

2. Keep track of all your expenses

It is important to keep track of your daily expenses using some form of cash flow analysis. With this, you will be in a better position to analyse your cash flow and see what is causing the credit card debt in the first place. Typically this will serve as an eye opener and can be one of the simplest ways to help reduce your credit card debts. Keeping track is easier than you think with the help of various cash flow and budgeting tools available in the market.

3. Finding a lower interest rate

Transferring your credit card debts to a lower interest rate is another technique that will help you pay down your credit cards faster. How? You can do this by simply negotiating a lower interest rate with your current lender, or look out for promotions from other lenders that offer low interest rates on balance transfers. Reducing the interest rate by a small percentage can be significant and may help you save a lot as you pay down the debt.

4. Consolidating your debts

If you own your home there may be an option to consolidate all your debts into a single loan. It is advantageous to use the consolidation technique because the interest rates offered on home loans are usually lower than those on credit cards. Moreover, consolidating the debts makes payments more manageable which may reduce reliance on credit cards and incurring further debts. If you consolidate your debts into your home loan, you should try and make additional repayments as a cheaper interest rate could end up costing more over the longer term.

5. Select a strategy you are comfortable with

It is obvious that you can use different techniques to pay off your credit card debts. The important thing is to ensure that you select the strategy that you are comfortable with. This could be one or several of the above options. It is imperative that you stick with the strategy, in order to reap long-term benefits.

With a bit of discipline and the right tools, you can reduce your credit card debts and hopefully eliminate reliance on their use. Whilst this may seem like an unrealistic goal for some people, the biggest challenge is actually making a start. You might be surprised at how quickly you begin to see results.

Please note: General Disclaimer Warning The information provided in this bulletin is general information only. It has been prepared without taking into account your individual objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information, having regard to your objectives, financial situation and needs. We can assist you in determining the appropriateness of any product or information mentioned in this bulletin. You should obtain a Product Disclosure Statement relating to the products mentioned herein.

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