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How to pay off your credit card debt on a low income

How to pay off your credit card debt on a low income

In the past year, major cardholders planned to carry forward $19 billion worth of debt according to research conducted by Roy Morgan.

Alarmingly, it is cardholders who earn $25,000 or less that are most likely to carry forward debt each month and incur the extra interest charges.

Amount carried forward as a percentage of income

amount-of-income-carried-forward

Cardholders in this low income group were also likely to have the highest percentage of debt compared to their income at 8.9 per cent.

Norman Morris, Industry Communications Director at Roy Morgan Research, said that while the overall debt figure was alarming, cardholders were generally doing OK.

“Although the overall level of debt that cardholders intend to carry forward per month has averaged an impressive $19 billion over the last year and is likely to rise over the festive season, it appears that most cardholders are coping with this level,” said Morris.

“Evidence for this is that this debt overall is only equivalent to 2.8% of cardholders’ incomes.”

Morris also acknowledged that while the overall figures weren’t too worrying, low income earners were still at risk.

“Some potential problem areas however are those cardholders with incomes of less than $25,000 pa, where around 80% carry over some debt.”

Amount carried forward each month by income

breakdown-of-amount-carried-forward

If you are on a low income and carrying your credit card debt month to month you may feel in over your head. Here are our top tips for paying of your credit card debt on a low income.

Never take on more debt

If you are having trouble keeping your debt under control, one of the worst things you can do is to add to this debt. While this may seem obvious, it is easy to see how desperate cardholders could resort to taking out loans to cover their credit card balances or other purchases but the reality is that this will only get you into more trouble.

In particular, debt holders should avoid so-called payday loans that have crippling interest rates that will see you further trap yourself in a debt cycle.

Use a balance transfer deal

Once you have resolved to not take on any more debt the best thing to do with your existing debt is to transfer the balance using a balance transfer deal. The advantage of doing this is that a good balance transfer deal will give you a certain time period where you will not be charged interest on your debt. Instead, you will have a window of opportunity to pay down your principal debt amount without having to worry about that figure growing. The key here is to avoid spending any more on your new card once the balance has been transferred.

Stick to a plan

Now that you have transferred your debt and bought yourself some interest free time you can start to formulate a plan of attack to get rid it. This will involve taking a brutally honest look at your incoming and outgoing expenses and seeing where you can afford to trim down. If you don’t feel like you can do this process alone, this may be a good time to engage the services of a financial counsellor who can take an objective look at your situation. This plan should aim to put as much of your income towards paying off your debt during the interest free period as possible.

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