8 key steps to eliminate credit card debt

By Susan Jane

Australians have a reputation for being resilient, hearty types, but even Australians get the shakes when staring down that beast called credit card debt. Thankfully, there are ways you can vanquish this ubiquitous beast. The following are eight key steps to do so.

1. Destroy your credit cards. Remove the temptation to spend uncontrollably, once and for all. Focus on repaying the debt you already have. Subtract from, don't add to, your existing debt.

2. Assess your debt situation. Summarise all your credit card debts on paper in a tabular format. Include: the amount of debt, minimum monthly payments, interest and other charges. Total each column to show your exact debt situation. Also use past statements to analyse the types of purchases you have made on credit so you can modify your spending behaviour.

3. Seek counselling. If you have spun out of control with credit card debt, seek counselling or assistance from a financial planner to gain support during this difficult period.

4. Formulate a strict personal budget. Set up a budget that includes only absolutely necessary outgoings. The outcome should be a generous surplus so you can plan a workable payment strategy. If necessary, get a second job, sell unwanted items and call in any cash loans to others.

5. Consolidate several debts. Consolidate several payments on credit cards into one account or a personal loan to simplify your debt management. If you can't do this, keep track of due dates for payments so you don't incur late payment fees.

6. Consult with your creditors. Keep your creditors in the loop by informing them how you intend to clear the debt as quickly as possible. Provide a plan of action and income/budget documentation to indicate your commitment.

7. Payment strategy. Always pay the minimum monthly payment, interest, and as much additional money as you can afford. You need to see the debts reducing quickly or you will feel like you aren't getting anywhere. Make weekly payments to your credit cards or loan accounts to decrease the amount of accrued interest.

8. Raid your investments. If you have funds invested, apply them to your credit cards. You can always reinvest again when your situation improves.

After you are debt free, use a debit card that allows you to purchase items in stores or over the Internet, and to withdraw cash from a bank account. This way you will only be able to spend what you have.

Article by Susan Jane

Published: July 1, 2009