Let’s talk about your credit card debt

By Julie Nipperess

Nick Molnar, the co-founder of Afterpay, once famously declared that: “Millennials are more scared of credit-card debt than they are of dying.”

You know what? I definitely don’t agree with him.

I’ve met plenty of people, including plenty of millennials, who have a significant amount of credit card debt. Let’s take, for example, Anna. She has $16,000 worth of credit card debt – debt she is struggling to pay off.

Perception versus reality

Perception versus reality

For years Anna has only met the minimum repayments on her credit card, and she has not made any real headway. She has a pretty awesome collection of coats, shoes and handbags, though.

Plus, she has been to London, New York, LA, Sicily and Amsterdam.

Anna has a university degree. She speaks three languages fluently. She has a great job in tourism, which pays pretty well, and includes plenty of socialising opportunities.

Her professional reputation means that she doesn’t often have to look for work – prospective employers tend to go looking for her.

On the face of it, Anna’s lifestyle is pretty envious. She drives a cute little Mini Cooper and shares a rental house with two of her besties. But she is also just one mis-step away from real financial hardship. If she (heaven forbid) accidently caught one of those cute designer heels in a snag on a footpath and had an accident that means she can’t work for awhile, Anna could end up in serious financial trouble. Because she only has basic insurances, and a lot of regular bills that need to be paid.

So… on the brink of her 30th birthday, Anna is about to sell her car, give up her flat and move back home with her parents for 12 months so she can re-boot her finances.

Now, ladies, while I really hate to make sweeping generalisations, it usually is young women in this age bracket (mid-20s to early-30s) who most often get themselves into financial difficulty… thinking nothing of spending $200 on a handbag, $40 on lipstick and $60 on a weekly manicure and yet don’t have any savings in the bank.

Spend less than you earn

And, I hate to break it to you, but it’s highly unlikely that some kind of ‘financial miracle’ will save you… you really must learn to save yourself. And that starts with spending less than you earn and proactively managing your debt.

Managing credit card debt

Managing credit card debt

If you have a reasonable amount of credit card debt, then the first step is to sit down and work out exactly how much. If you have multiple credit cards, then it’s important to prioritise them in terms of which one needs to be paid off first. Make a schedule of payments, and commit to it. And if you can pay off more than the minimum payment (even if it is just $5.00 more) you will be getting ahead.

The second thing you need to do is put your cards away so you’re not tempted to use them until you’ve got the debt under control. If you are really in trouble, then talk to your credit card provider. Most credit card companies have a system to help those struggling with debt and may be able to help by lowering your interest for a period of time, or waving current late fees to give you some breathing space.

Consider debt consolidation

Consider debt consolidation

Alternatively, now could be a good time to consider debt consolidation. Most credit card companies offer a card with an “interest free” period from time to time, which would enable you to consolidate multiple cards into a single card. This interest-free period gives you the opportunity of paying down as much of the balance owing, as possible, without the impact of ongoing interest.

Care is required with this option as these cards may revert to significantly high interest rates if the balance is not cleared in full, during the “interest free” period.

Consolidating into a personal loan may be another option. Interest rates on personal loans are around 5-7% currently. Compare this to what you may be paying on a credit card – anywhere between 8 and 25%. And car finance is probably similar to the credit card. If you can take out a consolidation loan to pay off those debts, with a lower interest rate, then you’re in a better position to handle the debt. Debt consolidation is not for everyone, and not all banks offer it, so it is worthwhile getting professional advice.

Budget for better results

Once you’re committed to paying off your debt, an airtight budget is more important than ever. Start by working out your monthly income, and then identify all your necessary expenses, like rent, groceries, utilities, registration, insurances and petrol. You must put money aside for these first, then allocate money for your debt. Your social life might suffer for a while, but just keep reminding yourself how good it will be to be debt free!

Stay out of Debt

How to stay out of debt

Once you’ve cleared all your debt, the next step is to stay out of it! And, because by now you’ll be good at sticking to a budget, take those newfound abilities and start a savings plan. Now is also a good time to think about your credit cards too. They are really convenient, but they can tempt you to spend more than you need to. The fees and charges can be onerous as well.

Do you really need one? Have you got the best one for you? These are important questions to ask, so shop around.

Getting out of debt is not easy, but it is possible. Most people get into money trouble because they simply don’t understand the ins and outs of finance – and that’s nothing to be ashamed of. Financial literacy is a life skill that you don’t necessarily learn at school. And don’t forget that it always helps to get professional advice, and that’s what the Step Up Financial Group money coaches are here for. So contact us.

Need more information? Get in touch with Step Up Financial

    • 107 Moulder Street,
      Orange, NSW 2800

      PO Box 2499
      Orange, NSW 2800

    • (02) 6362 5445