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Grown up talk: Credit Cards

Credit. That thing you’re begging your boss for, the bank won’t stop harping on about, and your mum definitely deserves more of. Credit is a good thing, right?

Unfortunately—when it’s followed by another little c-letter word, card—not always.

Because unlike the credit you used to put on your phone (remember those days?!) this type of credit isn’t pre-paid.

In this guide, we’re going to tell you:

  1. What a credit card is.
  2. Why credit isn’t always a good thing.
  3. How to pay them off, forever. (We won’t take credit for your success, promise.)

What is a credit card?

A credit card is a card provided by a bank or lender that allows you to spend money… that you don’t have.

Great! Um… no.

You will need to pay the money back, along with interest and some extra annual or monthly fees. That’s because the money on the card isn’t yours, it’s the bank’s. And they’re not in the business of giving away money for free. Funny that.

Generally speaking, interest is charged each month on any purchases made that weren’t paid back by the end of the month. If you’re unable to make the monthly repayment on time—interest and all—you’ll be charged an additional fee and have a nasty little cross on your credit score too.

When credit goes bad

While there might be some (exceptional, very rare) circumstances where a credit card can be good or even necessary, these circumstances are few and far between.

Because the risks are huge.

Credit cards love an impulse buy and reckless behaviour. “Come onnnn, live a little, I got this!” they say.

They’re easy to get, harder to get away from, and even trickier to get out of completely.

If you’re one of the many who has let a credit card get the better of you, you don’t have to keep staring at that looming pile of debt (or dread) forever.

We’ve all been there, and we’ve got a few get-out-of-debt cards up our sleeve for you.

RevUp’s 3-step process to clearing your credit card debt once and for all.

1. Stop using it.

This is obvious but nevertheless important. It will be impossible to get on top of your credit card debt if you continue to add to it.

“Easier said than done, Bonnie?” I know, so to help you break the habit I’ve got some excellent tricks for you that will put some real weight behind that commitment:

  • Don’t bury your head in the sand, tackle your debt head on. Make a list, write down everything you owe and when payments are due.
  • Actively consume debt reduction content on social media to keep you motivated.
  • Review. At the end of each month check your credit card statement and ask yourself if each purchase you made is worth the hit to your account today. A lot of purchases feel good in the moment. This will remind you of the cost.
  • Reframe your idea of what constitutes ‘necessary use’. Don’t use your credit card for non-essentials (clothing, a night out, footy tickets, etc). ‘Need’ those new trainers now but you’re a bit short this week? Put away the credit card. Wait till pay day.
  • Add your interest rate to the cost of your purchase before you tap to figure out its true cost. The $159.99 price tag on the trainers? Oh, not for you. They’re yours with a special little 18% on top for a total of $188.79. Oooft.

And the classic method:

  • Cut up your card. Delete it from your Smartphone. Unlink it from any and all accounts.

Still can’t curb your impulse buying? I’ve got more.

2. Negotiate a lower interest rate.

The interest is what’s killing you.

You think you’re making repayments but you’re really just (barely) keeping up with the interest. That’s why it feels like you’ve been paying off your debt forever and it just. won’t. budge.

Credit cards come with notoriously high interest rates. I guess that’s why they give them out so easily, huh?

Call your bank pronto and ask for a lower interest rate. You might even be able to re-negotiate some of your other fees too.

C’mon, what’s the worst they can say. No? For negotiating tips and tricks, read this.

3. Choose a debt reduction strategy.

This is where we start putting a serious dent in your debt.

There’s loads of ways to do it. Here’s a quick breakdown of the best:

  • The Avalanche Method: Pay off as much as you can afford on the card that’s attracting the highest interest rate each month, and just the minimum repayment on your other debts. Once you’ve tackled the card at the top, start putting the money you were paying towards it towards the card with the next highest interest rate, and so on, and so on. Idea being that as each card is cleared, you create a rolling ‘avalanche’ of funds that takes out the rest in no time.
  • The Snowball Method: The Avalanche Method in reverse. Pay off as much as you can afford on your smallest debt first, clear it, then roll the amount towards the next. And so on, and so on. Idea being that you get small wins quickly and build the momentum you need to face those chunkier debts head on (and throw the snow in their face). Boom.
  • The 0% Balance Transfer Method: Transfer the balance owing on your high interest card onto a new 0% interest card. Idea being you give yourself a breather from the interest and can focus on paying off as the real debt on your card as quickly as possible. Almost all the major banks will have offers like this going at one point or another, so it’s just a matter of doing your research and choosing the best one. A word of warning, however: in some cases you’ll be stung with a balance transfer fee, and… the interest free period won’t last forever. You might end up with another maxed out card to add to your collection.
  • The Debt Consolidation Method: Consolidate all of your credit card debt into a personal loan that will attract a lower interest rate and lower monthly repayments. Idea being you are a) paying less interest of course, and b) have just one debt to think about, making you feel more in control and less likely to miss a repayment.

Bonnie’s wrap

  1. Credit cards are the very definition of short term pleasure, long term pain.
  2. If you’re struggling to manage your incoming and outgoings as it is, they will only create chaos. More chaos! Chaos for everyone! They love chaos!
  3. You are not silly, doomed or even bad with money if one (or two, or three) has caught you off-guard.

But here’s the big one:

                There is life after debt.

No matter how dire your situation may feel, you can get yourself out of it. As with anything, getting started is the hardest part but once you get going, those cards don’t stand a chance.

And finally: it’s impossible for me to tell you which method of debt reduction is right for you and your financial situation. If you’re unsure, please reach out to a financial advisor or coach for help. There is so much support out there—all you have to do is ask.

Related to: Budget Basics
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