How To Get Out Of Credit Card Debt

By   |   Updated 10 Jun 2024

In this video, we look at how to get out of credit card debt.

Video transcript

Well, take Andy. He’s accumulated $3,200 on his credit card over the past two years, using it for everyday expenses, a fun snow trip to Canada, some home improvements (massive TV), and a few emergencies here and there (car breakdown). He’s paying most of it off most months, but the outstanding debt has slowly crept up, and it’s time to do something about it.

Credit Card Compare is here to help you with 4 general steps for getting out of credit card debt:

1. Resolve to do something about it

Don’t just read the news or get stressed out when you receive your monthly credit card statement. Become the Treasurer of your household. You can’t afford to be passive any longer about your credit card debt.

2. Start actioning stuff now

In order to successfully turn the tide, you need a budget, even if it’s not 100% precise. Figure out what you can cut back on and how much more you can afford to repay each month. If you’re married, then this means you need to get your better half on board; otherwise, it’ll be an uphill struggle. Use a balance transfer calculator like this one to work out how much faster you’ll reach the debt-free goal when you pay more than the minimum.

Use a free comparison site like Credit Card Compare to compare cards. Even with record levels of credit card debt, most people still don’t compare the card in their wallet to the leading credit card offers. You might be surprised to see what you could get.

3. Do a balance transfer

You can’t borrow your way out of credit card debt, but you can pay less interest and fees en route to paying it off. Doing a balance transfer speeds this up and helps you to avoid interest. Instead of keeping a credit card that charges 20% interest on your balance that you carry month to month, you can cool things off by switching to a new card that gives you 0% for as long as 24 months. There are many balance transfer credit cards to choose from, and any good credit card comparison site like Credit Card Compare will show you how much you stand to save before applying.

If you’ve got multiple cards and haven’t done a balance transfer on all of them, then you need a little bit more strategy:

  1. If you trust yourself to be disciplined, pay off the card with the highest interest rate first — this makes sense mathematically.
  2. If you feel like you need a bit of encouragement to build momentum, then pay off the card with the smallest debt first.
  3. Then attack the next one, and so on – this makes sense in terms of behaviour.

4. Then start to pay it down – month by month

There’s a lot you can do, like pause your savings plan, divert funds from existing savings, sell some stuff you want or need no longer, use tax returns, and do what you have to do to clear the debt.

3 mistakes to avoid when getting out of credit card debt:

1. Don’t spend on the balance transfer credit card

Instead, use the 0% interest period as your opportunity to become debt-free; otherwise, you’re just prolonging the problem and be back at the same point all over again. As for your old credit card, keep it on a short lease. If it’s no longer needed, get rid of the temptation, freeze the card, or close the account completely.

2. Watch for the revert rate

After the 0% balance transfer rate is over, any unpaid balances will be subject to the normal interest rate, either the ‘purchase rate’ or the ‘cash advance rate’ (both typically 18-20%). Do what you can to beat your card into shape before the 0% rate expires.

3. Don’t trash your credit report

This is the track record of all of your credit activity, and it helps lenders to figure out your creditworthiness. More likely than not, you will need to take out a personal loan, refinance your home loan or start a healthier relationship with credit cards in the future, so be disciplined in paying off your new card on time every month.