Quit the Card – 5 Strategies to Smash Your Credit Card Debt

We call credit cards the “hidden household bill”. Australians worry about our power and grocery and petrol bills but we sometimes forget how much Credit Card interest can cost.

Look at the example below:

Typical Credit Card Debt$3,500
Typical Interest Rate20%p.a.
Annual Interest Bill$687

That’s $687 a year in interest payments if you only pay the minimum repayment each month – which is equal to about HALF the average household electricity bill!

Then there’s the annual fee, which can be hundreds more, and up to 2% ‘merchant fee’ each time you use the card.

Had enough? Here are some tried-and-tested strategies to Quit the Card and live interest-free at last. None of them are easy, but being smart and having a plan will help.


1. The simple instalment method

The simplest way to get rid of your card is to chop it up and transfer any regular payments to a debit card instead. Then work out how much you can afford per pay cheque (or assistance payment), and set up a regular direct debit to pay the card balance down.

It sounds simple enough, but just removing the temptation to use the card and using direct debits to force yourself to pay it off can be very effective.

Be sure to check that your instalments are SUBSTANTIALLY MORE than the interest and annual fees, or you’ll keep going backwards. The ‘minimum repayment’ will NEVER be sufficient.

2. The Balance Transfer Trick

HOW IT WORKS: A slightly more complicated strategy, this one involves replacing your current credit card with a card that has ZERO interest for up to around 24 months and using that period to pay down your balance.

You then divide your balance into 24 equal instalments, and set up a monthly direct debit to pay it down.

Just make sure you diarise when the zero interest balance transfer period ends and cancel the card just beforehand as it usually reverts to a high rate of interest at the end of the interest-free period.

(NB: This strategy is only for the disciplined! It ONLY WORKS if you chop up the old card and you DO NOT USE the new card. In fact, don’t even activate it!)


Credit cards from mastercard, visa and maestro fanned out

If you have more than one credit card, or one card and some other debts,here are two proven strategies to pay it off: the Debt Snowball and the Debt Avalanche.

Each has its own pros and cons so see what fits best for you:

3. The Snowball Method

HOW IT WORKS: In this strategy, you start with the smallest balance first while continuing to pay the minimum amount on larger debts.

Once the smallest debt is paid off, you move onto the next smallest, and so on.

PROS: You’ll build confidence smashing the smaller debts and warm up to the bigger ones, which won’t seem so daunting by the time you get to them. This method is about trying to create momentum, like a snowball rolling down a hill that gains size and momentum the further it goes. In a 2012 study by Northwestern’s Kellogg School of Management, researchers found that “consumers who tackle small balances first are more likely to eliminate their overall debt” than trying to pay off high interest rate balances first.

CONS: By leaving your biggest debts til last, you might end up paying more in interest overall.

4. The Avalanche Method

HOW IT WORKS: Once again, you make a list of your debts, but instead of arranging them by size, you arrange them by interest rate. You then pay off the debt with the HIGHEST interest rate first, while continuing the minimum repayments on the other debts. Then tackle the one with the second-highest rate, and so on.

PROS: Your high-interest debt is doing you the most damage, so it makes sense to attack it first. If you’re able to make substantial payments, it might be the best approach for you.

CONS: Just because it’s the most rational approach doesn’t mean it’s the most likely to succeed. The danger with this one is you fall at the first hurdle and get dispirited.

5. Debt consolidation

HOW IT WORKS: Here, you take all your debts and bundle them into a single debt – such as a personal loan or a balance transfer credit card. Then you attack that one big debt.

PROS: Simplicity. Having just one pile of debt to chip away at can be psychologically advantageous. Also, you might be able to put it all under a low interest rate, which will save you money while you pay it down.

CONS: There’s a bit of admin involved to get it set up, and it works best if you have a strong credit score and can use that to get a super-low rate.


👉 Call the National Debt Helpline on 1800 007 007 to speak to a financial counsellor.

👉 Apply for an interest-free loan up to $3,000 to help families in need due to COVID-19. These cannot be used to pay down debt; they’re paid direct to your utilities providers. But you could then use the relief that provides to funnel more of your money towards a debt payment plan.

Any information is general advice, it does not take into account your individual circumstances, objectives, financial situation or needs.

Check KILL BILLS for more helpful tips about saving.

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