Kill bills: How to slash your plastic debt

This strategy will get you out of debt once and for all, and beat the banks at their own game.

GETTING into debt is the easiest thing in the world. Getting out of it is harder, but definitely not impossible.

If you follow these seven steps, you can kill your credit card bill once and for all: 1. Acknowledge the problem

Even small debts can cause a huge amount of financial damage if you don’t nip them in the bud. That’s because the bank’s minimum repayment rate is carefully designed to bleed you for as much interest as possible.

Let’s say you owe $5000. With a monthly minimum repayment of 3 per cent, you’d still be paying it back 15 years later. By the time you finally cleared the ledger, you would have forked out an eyewatering extra $5000 in interest.

Clearly, doing nothing is not an option. 2. Slash your interest rate

Just thinking about the average credit card rate – over 19 per cent – makes me sweat. Fortunately, there’s an escape route: All the big banks offer low or zero-interest periods of six months to a year if you transfer your balance across to them. In our example above, this move would save almost $1000 in interest, and give you muchneeded breathing room to clear the debt. 3. Remove temptation

Banks are not known for their generosity, so you’re right to raise a suspicious eyebrow about these offers. Balance transfers are only profitable because the lenders know most people will succumb to temptation.

The biggest mistake is to start merrily running up more debt on the old card, which means you’re even worse off than before.

The less obvious pitfall is to start using the newly-issued card. If you read the fine print, you’ll see that any new purchases attract full interest. The sting in the tail is that it’s impossible to pay off that new spending until you’ve cleared the transferred balance in full, which could take months or years.

Cut up your new card on the spot so you can never ‘‘accidentally’’ use it. As for your old one, I’d cancel it entirely, because the details will no doubt be stored on dozens of tempting shopping websites. 4. Make a plan

The third big mistake is to kick back, relax, and do nothing. Once the promo period ends, you’re right back to paying full interest. Instead, take advantage of the reprieve to aggressively attack the balance.

Figure out how much you can afford to repay each fortnight or month, then set up an automatic payment that sends the money through every payday. Make extra payments if you can, and track your progress on a spreadsheet or piece of paper. Watching the debt shrink away should give you added motivation to keep hammering away at what remains. 5. Rinse and repeat

If you’ve got a whopping debt, a year might not be long enough to clear it. If that’s the case, you can just transfer the balance to a different bank and get a new promo rate.

You don’t want to do this too many times. For one thing, it becomes too tempting to keep procrastinating. For another, you might run out of ‘‘second chances’’. The banks can see your credit report, and might not be keen on someone clearly just hopping from lender to lender. 6. Reward yourself

Setting a reward – a holiday, a nice dinner – will give you something to work towards, and help to reinforce the good habit you’ve established (as long as you don’t put it on your credit card, of course). 7. Be honest

Credit cards are useful tools. If you pay them off in full every month, and can channel enough spending through them to justify paying for a rewards scheme, you join a very tiny club of people who are actually winning the game. If you know you can’t be trusted to maintain this discipline, go get the kitchen scissors – you have some snipping to do. Got a burning money question? Email Budget Buster at richard.meadows@thedeepdish.org, or hit him up on Twitter at @MeadowsRichard. You can also find links to previous Budget

Busters here.