What are the best ways you can recommend to cut down on credit card debt?

GEN Y JUSTINE DAVIES

I BLAME our obsession with credit cards on the “every child must win a prize” mentality.

Heaven forbid that our little darlings should fail to receive an “I participated” ribbon after a sports event, or should fail to receive praise for completing mundane tasks that should be well within their capability.

Similarly, many of us want to be rewarded with vouchers and frequent flyer points for spending money we don’t have. We want our credit card to be platinum or black. Come off it guys – wake up and smell the lifelong debt!

We owe about $50 billion on credit cards, with $33 billion of that accruing interest. Canstar calculates the average credit card interest rate at 17 per cent – which means interest costs of about $15 million per day. They’re fabulous figures – if you’re a financial institution. If you’re not, then try these tips.

When your salary goes into your account, pay all your necessary costs first. That’s groceries, rent/mortgage, petrol in the car and bills that are due. Then, and only then, see what’s left over for non-necessary costs.

Challenge what really is necessary. The gym membership, buying lunch instead of making it and extra goodies aren’t necessary. If you can’t afford them, don’t buy them.

Cut the cost of your debt by finding a lowinterest-rate credit card. There are a handful of cards charging less than 10 per cent.

If you have an ongoing debt, then tackling it means challenging your habits. Justine Davies is finance editor and commentator with research and ratings firm Canstar.com.au

GEN X BRUCE BRAMMALL

BEST ways? Plural? Is there some suggestion that there’s more than one way? Because there isn’t. There is only one way to cut your credit card debt. Sorry guys, but it’s “willpower”. You just need some to draw on. Credit cards, used incorrectly, are cancers on your finances. They predominantly come with exorbitant interest rates that will eat up your bank balance, literally, from the inside. Evil. Unless you’re paying them off in full every single month, and therefore not incurring any interest, you have a habit you need to break.

John Farnham (daggy, I know) sang “just give me a reason”. For Xers, the reason will give you the willpower.

Is it because you want to buy a home? An investment property? Upgrade the family car, start putting away for the kids’ education?

Find it and you’ll have your motivation to stop paying, for example, $3000-$3600 a year on credit card debt of $20,000.

Willpower is what you draw on to not spend. And not purchasing stuff that you clearly can’t afford is the only way.

And don’t hold on to savings when you’ve got credit card debt. Holding on to $10,000 earning 2.5 per cent in a savings account, where you pay tax on the interest, never makes sense if you’ve got $10,000 of credit card debt, paying interest at 18 per cent.

Just find that reason that will give you the willpower. And, as you reduce your debt, call the bank and have your card limits reduced. Bruce Brammall is principal adviser with Bruce Brammall Financial and author of Mortgages Made Easy

BOOMERS MARK BOURIS

CREDIT cards are convenient, but they shouldn’t be allowed to become long-term debts. Not only does 15 per cent interest compound in your credit balance, making it larger each month, but minimum payments usually service the debt rather than pay it off.

There are several ways to approach credit card debt. Firstly, limit your credit cards and store cards. Having just one allows you to control debt and understand your spending.

Just one card is more likely to become a safety net rather than everyday spending.

Secondly, if you have racked up card debt and you want to reduce or eliminate it, you need a plan. Sit down and do a quick personal budget: look at your income and then work out how much per week (or per pay-packet) you have to put into your cards to pay them off in a year. Always set a deadline.

People often say they can’t do this. But usually they have luxury expenses they don’t want to get rid of. Typical ones include catching too many taxis, spending too much on phone plans, eating out too much and buying lunch and coffees at work.

Put the savings you make straight on the credit cards and then look for lump sums to pay out the cards quickly.

And that’s before you sell all the items you have in storage and stop paying storage fees.

It all starts with a budget: know what’s happening to your cash flow each week, and make debt repayment part of the budget. Mark Bouris is executive chairman of wealth management and advice firm Yellow Brick Road

RETIREES KERRIN FALCONER

HOW I see it is that there are three main groups of credit card users.

The first group is “Wild Things”. This group typically has four, five or more credit cards – all maxed to the limit – which they spend without thought as to whether they could afford it.

The “Malcolms in the Middle” can be like the first and third groups at different times.

The third group is the “Stars”. Many retirees fit into this group. They are excellent money managers and have a very good idea of how much money they can afford to spend. They use credit cards to their advantage, making purchases, gathering reward points and always paying off the full amount each month. So how do Wild Things and Malcolms become Stars?

First, don’t add to existing debt. If it is too much of a temptation to use a card, put it at the back of a drawer. Or better still, cut it up.

Some financial institutions offer a 0 per cent interest rate on credit card transfers. Transferring the balance to one of these cards can provide a breather on existing debt.

Make as many payments as you can to reduce the debt. And before swapping, check out the fees and charges of the new card.

Websites including Canstar, Mozo and Finder give comparisons of available cards.

According to Finder, the vast majority of credit card holders make at least one unplanned purchase on a card each month.

Avoid any unplanned – and probably expensive – purchases, and plan to be a Star. Kerrin Falconer is a finance writer and has worked in the financial services industry for 18 years