How to get out of credit card debt

Credit cards are a double-edged sword. In one way, they’re a helpful tool, but if used incorrectly they can cut into your life, leaving you crippled with debt. Here’s how to get out of that viscous cycle.

Molly Benjamin is the founder of Ladies Finance Club: an organisation that empowers women to get money savvy and take control of their financial future (without the boring bits). She believes you shouldn’t need a financial degree to understand your own personal finances.

From budgeting to investing and growing your wealth, Ladies Finance Club works with Australia’s leading financial experts to break down different areas of personal finance.

Molly is a finance genius, and she sat down with us to share the best way to get out of credit card debt and stay out.

Be aware before we get started, it’s to be noted that the information on this website is for general information only. It should not be taken as constituting professional advice from the website owner. We at Redaktor are not financial advisors.

Why do people get themselves into credit card debt?

Generally we find people go into debt for a number of reasons including:

They haven’t set up an emergency fund (or as we like to call them at Ladies Finance Club an “OMG fund”), so when an unexpected expense pops up, they have to stick it on the old plastic. That’s why we always say the first thing any money savvy lady should do is to build an OMG fund.

They are spending more than they earn. Spending has become so easy and seamless. You need a new outfit? click and it’s yours. Hungry? Tap and dinner is on its way.

So if you’re struggling with money, you’re certainly not alone. CommBank recently found 73% of millennials admit they struggle to prioritise their financial wellbeing and one of the truest paths to combatting this struggle and growing your wealth involves spending less than you make.

People have credit cards ‘just for emergencies’ but find themselves in debt. The reality is that having a credit card is actually a debt card. If you think of it that way, it can really change your spending habits.

$2000 on a credit card paid at the minimum repayment (with an average interest rate of 18%) would take you 18 years and 8 months to pay off with a total payment of $5500 – isn’t that crazy!?

How can you avoid getting into or back into credit card debt?

Set yourself some ground rules. For example, when shopping online, leave it in your cart for 24 hours and don’t forget to delete your card details from your online shopping accounts.

Know when your bills are due. Use financial budgeting tools and apps to keep track of your bills. CommBank’s new bill predictability feature, Bill Sense is available in the CommBank app and predicts your upcoming bills and their approximate amounts up to 12 months in advance.

Research commissioned by CommBank actually found millennials who are very confident they could list all the bills they pay each month and their approximate amounts are three times more likely to believe they will achieve their long term savings goals!

Reduce your credit card limit. To avoid the temptation to overspend, contact your credit provider to reduce your credit limit. Even better, ask your bank to put a lock on your credit cards while you’re paying them off so there’s less temptation to spend.

How can you get yourself out of credit card debt? What are some options? I am a really big fan of the ‘snowball method’, a concept coined by American financial expert Dave Ramsey.

He tells us to ‘face our debt’ by writing down all your debts from parking tickets to credit card debts and buy now pay later loans.

Detail the amount, the minimum repayment and the interest rate and list out your debts from smallest to largest.

Pay the minimum repayment on all of them except the smallest one and you want to aim fire and pay as much of that smallest debt off as you can. Keep going until that small debt is repaid.

Celebrate (a glass of wine, buy yourself an icecream – find an inexpensive way to reward yourself) as you’re on your way to being debt free! Then, start paying off the next debt. It’s called the snowball because of the momentum you gain each time you pay off a debt.

What are some budgeting tips to help achieve financial stability?

Pay yourself first! Decide how much of your pay you want to save each pay cycle and line up an automatic transfer from your pay account to your savings account on pay day. Boom!

Know your expenses. Knowing where you are starting from means you can plan for where you are going. Take control of your money by knowing how much is coming in and how much is going out.

If you suffer from bill fright, financial budgeting tools are the answer.

According to the research, millennials who are very confident they could list all the bills they pay each month and their approximate amounts, are three times more likely to believe they will achieve their long-term savings goals!

Set Goals. Having goals will make it easier to stick to a savings plan, we say break them into short (0-3 years) medium (4-7 years) and long term goals (7+years) and make sure you put a timeframe and amount on each goal, that way you can work backwards to find out how much you need to put away each fortnight or month!

If your personal debt is overwhelming and you’re finding it difficult to pay off your debts, then please seek help from a Financial Counsellor or call the National Debt Helpline on 1800 007 007.

While you’re here, you might also like our guide to budget (but still living like a young person) or our introduction to points hacking.

(Cover image: Stephen Phillips)

Luke Hopewell

Luke Hopewell is the editor and co-founder of Redaktör. He's previously been the Editor of Gizmodo, Founding Editor of Business Insider Australia, Editorial Lead for Twitter Australia and more.