We do it every year – spend big on Christmas and regret in February!! I don’t know about you but this year I wanted Christmas and New Year to be really special. After all the Covid crap we had to deal with this year (and a big salute to my fellow Melbournians as we were house bound for most of the year), so many of us went all out.
And you know what comes next…the dreaded January Credit Card statements.
And with that comes the guilt – that horrible creeping feeling that you have done something wrong. Maybe you haven’t, maybe those happy faces getting exactly what they wanted for Christmas, or all the dinners out or the big expensive (local) holiday was completely worth it. I hope it was. Life is here to be lived.
Getting into debt because of overspending happens.
What you do next is the important part.
Would you like to get rid of that credit card debt? I am sure the answer to that is a big YES!! Because after all who wants to pay upwards of 15% paying back that beautiful holiday? It does take some of the joy away.
So, lets get started with a very simple exercise:
Take a look at the bottom of the first page of your card statement and it will tell you how long it will take to pay your debt out by paying the minimum amount each month.
The minimum payment is around 2.5% of the outstanding balance – so if your card is maxed at $10,000 you will have a $250 minimum repayment. Try to increase these minimum repayments to the maximum you can reasonably afford so you can smash that debt in the shortest period of time possible.
Credit cards are designed to be used and accrue interest, sometimes at an exorbitant rate. That is why credit card companies offer ‘perks’ such as frequent flyer points, special discounts, bottles of wine, and the feeling that you have joined an exclusive club. They may offer free travel insurance, and colour-coded cards for prestige. At the end of the day, these perks are nothing more than smoke and mirrors, designed to hide what they really are: enablers of debt.
This time of year is when you will be hit with all the special offers and bonuses that can possibly come your way.
What seems like a million years ago now I had $35,000 in credit card debt. As a single mother with a daughter at a good inner Melbourne school, I was trying really hard to keep up appearances. I wanted her to have it all, and if I am really honest, I wanted to look like I had it all!!! This debt used to wake me up in the middle of the night.
It took me a few years to pay off that debt, and even longer to let go of the shame of being out of control with my spending.
It’s time to step out of that shame bubble and move back into being in control.
Getting rid of card debt is not that hard if you are focused and patient. You can also get rid of the problem quickly. Please note here that I am not saying you need to get rid of all your cards.
I have a credit card for travel, with no international transaction fees and a small annual fee. I have another one for online business purchases. These are useful. I don’t keep them in my wallet because I don’t want to use them daily.
Here are a couple of methods to pay down your cards – you can chose either the higher rate ones first or the smallest first. I tried both and found I preferred doing the smaller ones first (Dave Ramsay calls this his snowball method because every time you pay one off completely you add that payment to the next one.
Monthly Payment = $500.00
Initial Snowball =$230.00
If you wanted to Avalanche these debts, it would look like this:
(highest interest rate is the first to be paid off)
|Creditor in Order||Original Balance||Interest Paid||Months to Pay Off||Month Paid Off|
|Credit Card 2||$9,000||$1,744.87||32||September 2022|
|Credit Card 1||$4,400||$1,798.64||44||September 2023|
|Car Loan 2||$5,000||$2,414.68||55||August 2024|
|Car Loan 1||$3,200||$1,467.30||62||March 2025|
|Personal Loan||$4,900||$1,011.94||70||November 2025|
Total Interest Paid = $8,437.43 (lower is better)
Now, you can chose to pay off the one with the highest rate or the one with the lowest balance
If you wanted to Snowball these debts, it would look like this:
(lowest balance first)
|Creditor in Order||Balance||Interest Paid||Months to Pay Off||Month Paid Off|
|Car Loan 1||$3,200||$186.45||14||December 2021|
|Credit Card 1||$4,400||$1,016.44||29||March 2023|
|Personal Loan||$4,900||$570.81||43||May 2024|
|Car Loan 2||$5,000||$2,417.89||56||June 2025|
|Credit Card 2||$9,000||$6,392.36||75||January 2027|
Total Interest Paid = $10,583.95
Two more tips along the way
When you have reduced your balance owing by a significant amount like maybe $500 lower the limit. You can normally do this on line.
Cut up the cards that you don’t want to keep. You can’t use what you don’t have.
As with everything do your best – this is you versus you!! Your debt is a luxury and once you clear it you will have all this lovely money to do fun things again…and you are worth it!