How to pay off your credit card

When used unwisely, credit cards can land you in debt. Also, the average Australian card holder is already paying in excess of $700 in interest per year.

If you’ve racked up credit card debt, the rational thing to do would be paying it off as soon as reasonably possible. Here are some strategies you can follow to pay down your card.

10 ways of making your credit card work for you

  • Aim to increase your minimum repayment amount. Only paying the minimum amount owed on your card will result in more interest and a longer period of debt. If you find it hard to maximise your repayments, consider a 0% balance transfer to a card with a lower interest rate.
  • Don’t add more debt to your credit card. However hard it may be to avoid the temptation of making a purchase that exceeds your monthly credit limit, remember that it’s harder to pay off credit card debt at a higher interest rate.
  • If you have more than one credit card, pay off the one with the highest interest rate first. That way, you’ll end up paying less and less interest after you’ve paid off the largest portion of your credit card debt.
  • Don’t be in a rush to close a card with an existing balance. You might think this is an easy way to regain control of your debt; however, closing a card with an existing balance carries more long-term risk than you can imagine – and can reflect negatively on your credit score. If you must close a certain credit card account, ensure you pay it off very quickly and make a written request to close it to the issuer.
  • Track your spending. The convenience of using credit cards to make desired purchases can prove to be more costly than you think. There is a number of tracking apps available on the internet – or you can always log your expenses into your budget spreadsheet if you’re friends with Microsoft Excel!
  • Maintain a reasonable credit limit. In other words, don’t spend more than you can afford. You can ask your credit card provider to lower your spending limit, which normally takes 1-2 business days to take effect. Also, remember that banks are not allowed to invite you to increase your credit limit before getting your agreement first – and if you want them to stop sending you invites, ask them to.
  • Don’t use your credit card for emergency payments. Even if you’re cashless just before payday, using your credit card to make an unplanned expense, or getting a cash advance on your card isn’t advisable. This is where your emergency fund should ideally come into action.
  • Get in the habit of checking your credit card statement. Keep your monthly credit card receipts and check them against the charges on your statement. You don’t want to pay for what you didn’t buy!
  • Look into debt consolidation. Combining all your unpaid debts into one loan and then paying it off at a lower interest rate can help you manage your credit card troubles. If you find yourself struggling to make repayments, this might be your go-to solution.
  • After you’ve paid off your credit card, cancel it properly. Interestingly enough, cutting up your credit card might not necessarily signal the end of your cardholder journey if you didn’t close your account properly. Even if you no longer use the card you’ve paid off, you can still be charged fees or penalties – or even expose yourself to the risk of credit card fraud if someone steals your details. Call your provider and tell them you want to close your account, or put your request in writing.