5 simple ways to get your credit card debt in check

A credit card can be a great way to manage your finances, but it’s easy to lose control if you’re not careful. There are some easy steps you can take to keep your balance in check, though. Whether you’re struggling to repay an existing debt or you want to avoid falling into credit card traps, use these five tips to help get your credit card habits under control.

1. Use a card with a low interest rate

If you struggle to repay your debt in full, you might want to consider a card with a low interest rate. Standard purchase rates can be as high as 21% but low rate cards usually offer an ongoing purchase rate of between 11% and 15%.

2. Set a monthly budget

The freedom of a line of credit can help free up your cash flow, but it can also be tempting to overspend. It’s important to remember that you have to repay everything you’ve spent, plus interest in many cases. This is why spending in line with a monthly budget can help you keep your expenses in check. This way, you won’t have any nasty surprises when you go to pay your credit card bill each month. Plus, if you set a realistic budget based on your expenses and income, you’ll have a much better chance of repaying your entire balance in full and avoiding interest charges.

3. Carefully consider credit limit increase invitations

Banks aren’t allowed to invite you to increase your credit limit^* unless you give them the approval to do so. You can usually opt in or out of receiving credit limit increase invitations when you’re filling out your card application. You should carefully consider your financial situation before you accept invitations for a higher credit limit. This way, you can maintain more control over your credit card balance, and minimise the risk of getting into any problems.

4. Pay more than the minimum repayment amount each statement period

Each month, you’re required to pay a minimum repayment amount of around 2% or 3% of your closing balance by the statement due date. While this will help you to avoid late payment fees, it’s best to pay more than the minimum amount each month^**. This is because the more you pay each statement period, the quicker you’ll repay your debt and the smaller your interest costs will be. If you only pay the minimum amount each month, it could take you years or decades to clear your debt and it could cost you thousands in interest.

Ideally, you should do your best to pay off your balance in full each month to avoid interest altogether. If this isn’t possible, you should set a goal to pay as much as you can each month and calculate how long it will take you to clear the debt.

5. Take advantage of interest-free days

If you pay your balance off in full before the end of the statement period, you can usually take advantage of interest-free days in the next statement period. The offer will vary from card to card, but you can often take advantage of up to between 44 and 55 interest-free days. Exactly how many interest-free days you’ll have access to will depend on when you cleared your balance. The earlier you repay your balance in the statement period, the more interest-free days you can take advantage of in the following statement period.

The reality is that most of us will need to use a credit card at some point in our lives, but arming yourself with the strategies needed to manage your debt effectively will help you avoid any problems you may face paying with plastic.

* Click here to know more about consumer credit regulation at ASICs website on moneysmart.gov.au

** Click here to know more about how much it is recommended you should pay off your credit card each month on finder.com.au