Out of control debt | Is it time to cut up your credit card?

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January 31, 2018 Out of control debt | Is it time to cut up your credit card?

Being in debt on your credit card isn’t much fun.

If it’s manageable and you’re confident you can pay it down quickly, fine.

On the other hand, if you have a couple of cards and you’re heading into the five-digit territory, there’s always an inescapable feeling that lingers around until you’re in the home straight of paying it off. It’s a feeling you wake up to every day.

And there’s a certain stigma attached to allowing personal debt to get out of control, particularly if it’s ‘bad’ debt. Namely, putting yourself into debt for purchases that aren’t going to generate money for you.

Now, as you’ve no doubt heard me mention before, credit cards serve a purpose.

Whether that’s for family emergencies or taking advantage of interest-free periods, they’re fine if you know you’ll have the money to pay them off prior to the interest kicking in.

One of the biggest dangers I often see is people falling behind on their payments, as this will have consequences down the track if you’ve yet to get into the housing market.

Ultimately, it’s your credit rating that will suffer and potentially come back to haunt you.

Sometimes, out-of-control credit card debt can serve as a much-needed wake-up call. Like so many things in life, if you can pay it down, learn the underlying lesson and ensure you don’t get yourself into that situation again, I’d argue that’s a good thing, particularly if it gets you in the driver’s seat in taking control of your finances.

Is it time to cut up your credit card?

Before you pull out the scissors and cut up your card, there are a couple of key things I’d try first, just to help you start to develop some much-needed willpower around your spending…

Hide it!

I reckon one of the best interim things you can do is to liberate your wallet (or purse) of your credit card and pop it somewhere safe.

Some people swear by the freezer, which I always find funny, but anywhere that’s going help stop you reaching for it when you come across something that sparks those spontaneous, unnecessary purchases is a great place to start.

What you’re aiming to do is slow your temptation to rack things up on your card/s.

I could name at least a dozen people who’ve tried it, and it’s something that really transformed the way they look at their spending.

Consolidate your debt

Particularly if you have more than one credit card.

Scouting around for $0 interest transfers offers on credit cards with other banks is also a good idea. Your best bet is over a 12-month period if possible.

If you haven’t done it before, once you apply for the new card, it’s simply a case of authorising the transfer of your existing debt from your current card. Now, transferring your debt’s all very well, but you have to commit yourself to taking advantage of the zero-interest term and using it make regular payments to pay it right down. Otherwise, you’ll quickly find it a complete waste of time.

If you’re in considerable credit card debt, your strategy might be to move your remaining debt to a new $0 interest card transfer every 12 months.

To put things in perspective, a friend was in just over $30K in debt between three credit cards a little over seven years ago. Suffice to say she felt like she was on a constant knife edge, struggling to chip away at her actual debt while paying huge amounts of interest.

By employing this particular strategy, four balance-transfer cards later over the course of four years, she managed to pay it all off. She also learned an invaluable lesson and is now very close to buying her first property.

Be accountable with your money

To pay off your credit card debt, you need to commit to paying off more than the minimum monthly amount.

In fact, you might need to bunker down for a bit and curb your general spending, throwing the remainder of your disposable income onto your card, just to help you pay it down as quickly as possible.

Here, regularly using a money management tool can be invaluable. They’re really simple to use and something we can easily help you with.

In saying all that, it can be overwhelming if you find yourself in serious debt. As always, if you’re struggling to get back in the black and need someone to bounce ideas with, feel free to give me a shout.

Disclaimer: all information contained within this article is of a general nature. It does not take into consideration your personal financial circumstances. Please consult a professional financial adviser (just like us 🙂 ) when making a financial decision.

Jason Chew

I've been in the financial services industry for 10+ years and love coaching people to make the most of what they have.

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