Paying off credit card debt

7 March 2012
Banks have no interest in you paying off your credit card debt fast. They make a sizeable proportion of their profits from the interest payments made on credit card debt. It is in their interest for you to take as long as possible to pay back what you owe. The average credit card account balance was $3,333 in November 2011. (Source: Reserve Bank of Australia, January 2012) Today I was going to present a lot of current information about what the state of credit card debt is in several countries but now I think that is the wrong way to go about encouraging you to start getting serious about paying off your debt. Seeing a lot of statistics can confuse some people and it angers others. There are some who have become comfortable with credit card debt and believe it to be part of modern life; I am not one of those people. I believe there is such a thing as good debt, and that is the mortgage you take out on your family home. Many of us will carry that kind of debt, many more of us will add to that with credit card debt and personal loans. It is that extra debt that I want to address today.

Unless you're working in a job you absolutely love and see your job as a career or a vocation, like the majority of the world's population, you're probably working primarily for the money you earn. There is no law that states you have to work full time for the rest of your life. If you can pay off your debt, save money and set yourself up for your later years, full time work could possibly make way for part-time work or early retirement. You do not have to work until you drop. You could take time out to enjoy life as well.

So how do we go about that? How can we draw a line in the sand and start paying off debt with the absolute intention of being debt-free, except for the mortgage, in the next few years.
  • Lay-by and layaway plans are making a comeback. Until the creation of credit cards in the 1950s, and their common use by ordinary working people in the 1970s, we all used to save up for what we wanted and needed to buy. Many people used lay-by or layaway schemes, which was a way to pay for products in instalments before you could take them home. It was a kind of forced saving. Many shops are bringing back their lay-bys and layaways, or expanding them to include a wider range of products and prices. More info below.
  • Stop spending. Adding to your debt will stop you paying off what you already owe.
  • Think of prices in terms of work hours. For example, if you earn $40 an hour and you want to buy a new TV that costs $2000, you will have to work at your job for 50 hours to pay for that TV in cash. If you put it on your credit card or get a loan, it will cost more. And remember, that 50 hours work is on top of what you'll be working to pay off your other debt.
  • Save an emergency fund. Everyone has unexpected debt from time to time. The fridge will break down, the dog will get sick, there will be something that crops up just when you can't afford it. Most of us put those unexpected payments on our credit card. If you have an emergency fund you don't have to do that. You can pay in cash. It's amazing how confident you'll feel when you have that buffer between yourself and unexpected debt.
  • If you have more than one credit card, pay off the one with the highest interest first.
  • Don't fall into the trap of paying the minimum payment each month. That option is the best one for the bank, not you. If you never pay more than the minimum payment, it will take you about 50 years to pay off your credit card. Every month you pay, you're also being charged interest, and it's usually high interest, so what ever you bought with your credit card will cost you about double what it cost someone paying cash. That doesn't make sense.
  • Pay cash. If you do that, you'll find you're much more likely to check for bargains and not be fooled into paying for something you really don't need.
  • Track your money to see where it is being spent. At the end of every week, work out your non-essential spending - all those cups of coffee, magazines, takeaways, movies, chocolates etc that you don't need. You non-essential spending amounts are your potential savings. Continue tracking for a month to see your spending patterns, when you have a month's worth of tracking, you'll see clearly where you can cut back and save.
  • Know how much debt you have. Sit down with your partner and work out what you owe. Then work out a plan on how to pay it off.
  • If you're doing this with your partner, don't lay blame, and forget about what you spent in the past. It is not productive to say: "YOU spent $200 on football tickets last month." or "YOU spent $400 on a pair of shoes." What is spent is spent. Draw a line and go forward from that point.
  • Make some of your own products - homemade soap, laundry liquid, bread, dishcloths etc will save you a lot of money. 
  • Think about different ways to save: Cancelling your pay TV or mobile/cell phone will save money. Cutting back on groceries with prudent buying and stockpiling can save money. Reusing and recycling will save buying new - shop at op shops.
  • Renegotiate your monthly bills such as insurance, phone and internet accounts. Even electricity accounts might be able to be renegotiated. Do some research first and know what the competitors are offering before you phone your provider. Be polite and let them know you have done your research, ask for a better price and hopefully they'll give you one rather than lose you as a customer. At the very best, you'll get a good reduction, at the worst, your payments will stay the same each year.
I am not going to tell you this is easy. It's not. In fact, if you've got a lot of debt and you've been flashing the plastic for far too long, it will be difficult. But it's not impossible and it will get easier. Starting is the hardest part because as you start to see the rewards of your debt reduction efforts, you'll feel in control and motivated to keep going. We have no debt. We paid off our mortgage in eight years instead of the twenty years we signed up for. Paying off our debt was one of the important milestones for us, I guess it will be the same for you. I do know for sure that once you've made the decision to pay down your debt, started working on it and made some progress, you'll feel a kind of liberation and satisfaction.

Credit card debt is one of the most insidious and treacherous modern life traps - it will stop you living to your potential. If you're up for it, I refer you to Lisa's debt challenge on the Down to Earth Forum. There are many people there making a commitment to paying off their debt and getting support and encouragement as they go, from others doing exactly the same thing. If you decide to take this important step, click on the link and join in. Let me know what you're doing - I am interested and really encourage you to do this. If you've paid off your debt, or are in the process of doing it, please tell us how you did it. Your tip might be the one that saves someone else.


  1. Lots of good advice here - I have just transferred my highest interest credit card balance to a 0% card (as long as I don't add to it) for the next 15 months. I can pay it off over 15 months if I am careful. I also sold my car, and paid off my other credit cards with the proceeds, leaving a small safety net in a savings account, in case the washing machine dies, or I need to pay for other household repairs. It feels good :-) I have also de-cluttered and as a result, stopped buying "stuff" that I don't actually NEED, which is very "free-ing". My stress levels have reduced substantially, and my happiness levels are way up :-)

  2. Another phennomenon I hear of a lot is IF one partner within a relationship spends a relatively high amount of $ on a particular item or experience (eg, short trip, hobby related equipment), then sometimes the OTHER partner is allocated the same amount to spend on something else - even if that "something else" is not high on the wants/needs agenda. It is a sort of "keeping tally" or "tit for tat" system - which seems potentially wasteful to me.
    Welcome home, Rhonda and Hanno!
    Tracy LH :-)

  3. Hi Rhonda,

    First off - I'm glad you and Hanno are back! I've missed you.

    Today's post is one that I'm going to recommend to my neighbor. Less than ten minutes before I read your post, our 30-something neighbor told us that his wife just received word that the company she works for is downsizing and she will lose her job. They have known about this possibility for at least six months. However, he is devastated and is saying that they'll likely have to sell their home (huge and expensive)in order to survive. The irony is that for several years we have watched and worried as they charged more and more without a thought as to the future. Now the future is here and they are so ill-prepared. There are so many lessons I've learned from your blog: 1) Live below your means; 2) It's never too late to curb your extravagant lifestyle; 3) HAVE AN EMERGENCY FUND. My husband I love our neighbors as though they are are grown children and are so sorry that they have to carry the burden of their unwise decisions.
    I can't thank you enough for your wisdom and I am hopeful that sharing your blog with them will help them get through the upcoming hard time and learn from it.

    Diane in North Carolina

  4. Hi Rhonda, great advice, we have always paid off our credit card in full each month and our children have followed the same advice. Credit cards are handy for using to pay online as long as you follow the rule to pay off in full each month. Thought you might like to know your book has made the list for must read books in the March Fernwood magazine, congratulations!

  5. What a lot of sound advice in one post! We took our finances by the throat a few years ago - although we didn't have much in the way of credit card debt, we did have overdrafts and a loan, on top of the mortgage, and when I actually ran through the figures I realised it was simply unnecessary. We streamlined everything, paid back the loan early, cleared the OD's, and are now concentrating on making money *from* the banks by spending on cards which pay us cashback and ensuring that we clear them in full each month! Great to hear that others are re-focusing their finances in the same way!

  6. Posts like this make me so relieved I have never had a credit card. The first thing that I did for my husband when we married was pay his debt off too, and now we live in a cash only economy. If we haven't earned it, we don't spend it. We're only young, with a young family, but I think this will set us up for the future.

    My big saving tip is cutting back the home phone. Since we both have mobiles, and need them for travel, we changed our home phone to an Internet only connection. People can still call us on the phone, and we can still call emergency and local numbers, but otherwise we can't dial out. It's saving us a packet!

  7. Thanks for the reminder about how much credit card debt can cost us. My husband and I have not had a credit card for about 5 years now, and this month will make our final car loan repayment. I can't remember the last time our monthly bills were so low. Yes, we still struggle on a low income, but soon our mortgage will be the only debt we have, and it is all thanks to blogs like yours that encourage us to live simply and frugally.

  8. Great advice Rhonda. We had a credit card and it was always maxed out. We would make a payment then go shopping and max the card out again. We decided to consolidate all our debt, chop up the cards and pay off that loan before we purchased another item. When that last loan payment was made it was such a relief we vowed never to have another credit card. Today 10 years later we do not own a credit card only a debit card. We live within the weekly income and have a contingency fund. I never thought that living nearly debt free was possible but it is.

  9. These tips sound very similar to Dave Ramsey, a financial guru over here in the states. I've been following his advice (and yours, though I didn't know it then) and we were able to pay an amazing amount of our debt off very quickly. Saving can be just as addictive as shopping!

  10. I really like all these ideas with the exception perhaps of using lay-bys. I always felt that it was still buying something you don't yet have the money for, (even though you don't physically receive it) and often times people can get caught up paying so many lay-bys that they really stretch themselves and life becomes difficult. I think it is easier and safer just to save and pay outright...there will always be another bargain around the corner, we just need to wait for it.

  11. Years ago having an actual credit card was looked down on. In face they didn't have them until when?? Department stores had them but when did the major cards come visa and Master cards and such?? It wasn't That long ago really. Before then people established credit at the general store and such because their earnings only came in a couple times a year. Such as in the farming families. People tried to pay cash even then when they could., or bartered for goods. Layaway was used when a special sale or something came into the stores that would not be there and was necessary to have now. So if you layed it away now you were assured you could get it...once you paid it in full. We have only used a credit card through the years for the times we could not get to the bank and say the water heater went out. We could charge it then pay it off when the statement came in that month. The mentality now seems to be if you see something you want {but may not need} just get it... charge it if you don't have the cash. This mentality gets so many people in trouble doesn't it. There is always tension when that bill comes in the mail. When it does I have heard couples say something is wrong...they paid the minimum the month before and the total has not gone down... well it won't because the companies charge such a percentage on your balance for the privilege of having their cards. I hope people wake up to the tensions they are causing themselves over over spending. These bits of stuff they buy do not make them happy for long. Then it is on to buying some other trinket. After a while they are charging their utilities or house payment cause they have gotten themselves so much into debt. As we know the freedom you feel from NOT having any debt is so freeing!!! I worry for these indebted families. I try to kindly inform them as to how they can help themselves out of debt. Now I also lead them to your site for this and so many other posts. Sarah

  12. A friend of mine always writes her credit card charges into her CHECK register and immediately subtracts the charge(s) from her balance. That way she always knows she has the money to pay the bill off. (And you're not charging against money you're "about to" get... )

  13. "Think of prices in terms of work hours." - That is a fantastic idea! I am going to tell everyone I talk to about it! It is one of those sort of mental tricks that really, really brings things into perspective in a real and comprehensible way. Thank you!

  14. We recived our credit card when we purchased our bedroom suit some years ago, l didn't want to start using it so it stayed in my bag for months unactivated, then we need a part for the car on the Sunshine coast and l could pay for it over the phone and l activated the card. We still use the card but the balance is never over $1000, it's handy to pay your insurance on line and it's cheaper.
    For the last 11 years we have always paid extra on our house loan and have been able to redraw on it in times of need, last week we had enough to buy a brand new car which will see us through to the end of our days.
    Thanks Rhonda for the encouraging posts.

  15. Naive thiry year old lady marries charming religious tax-preparer/investor gentleman. In short order he has left her in debt and helped himself to her life savings (only around $20 some thousand, but that was a lot in those days). During their short matrimony, he has set up his next con - oh, and he was still married to a previous wife. Move back to hometown, get job, start over. Paying on debt - no dough left over to save and besides some jerk will just steal it anyway - why bother. Now 42, debt paid off, job upgrade, figure out it's a little harder for someone to take money that's in a retirement plan, recovered enough to save, save, save again (but only in retirement plans - no where else - except a loan to a family member that they blow off). Live thrifty, plan for retirement at 62, but company undergoes merger/lay-offs. Now 56, unemployed, job market very bad, but with savings plus some severance pay and 6 months unemployment, might squeak by until Social Security kicks in.

    Life takes many unexpected turns. So here's my financial advice. Dating should start out like a VERY LONG job interview. If they pass, then let the romance begin - not before. Start saving for your future as soon as you have enough sense to keep it in your own pocket.

    That is all.

    b f/a

  16. We have never carried a credit card balance and rarely use ours .. at the beginning of each month we write out a budget on paper and 'spend' every dollar, get $ (cash) for our spending envelopes, set aside money in checking for current bills AND (a portion for) bills we know will become due. This especially works for insurance premiums that many people pay monthly .. with an added service charge. By paying once or twice a year, you can save all those 'convenience' service fees. Every little bit helps when trying to find ways to pay down debt. Hubby and I take $100 cash at the beginning of the month for little extras so we don't dip into the checking account for un-budgeted items. Having envelopes for cash 'allows' you to save for your needs/wants if it's budgeted .. it also helps you to not feel deprived and want to dip into checking or savings. We have worked VERY hard the past two years and finished paying off the last of our debt .. our mortgage .. on March 1. Today was payday and it felt really nice/weird not to have to deduct for this payment.

  17. Hi Rhonda,
    Welcome home, sorry I missed you when you were in Canberra.
    My mum always said, if you don't have the money either save up or put it on lay-by. When I moved out of home, I lived month to month with my credit card, only paying the minimum. Something clicked about 10 years ago and I paid all my credit cards out and only have one left (for emergencies only). I am trying to teach my kids that having a credit card is not a great thing, I will be making them read this blog. Thanks.


  18. Hi Rhonda,

    I completely agree with the advice you have given. I am now debt-free (hurray) and that certainly gives peace of mind, because you have more money to set aside for things you really need.

    In response to your remark on hourly wage, I wanted to mention something I read in "Your Money or Your Life" by Joe Dominguez and Vicki Robin.

    In that book, it says you should make a list of work related expenses, such as work clothes, lunches at work and the commute to work, childcare, etc. Take your payslip, and deduct these costs from your pay.

    You then take your work hours, the time to commute, and the hours you need to recover from a busy work day, and add these up. Divide the remaining amount of money by the number of hours, and then you get your real hourly wage.

    Best wishes,


  19. I love this blog and we have spent the last three years overheauling our lives. We grow veg, make own cleaning agents and powder, soap, stockpile. We don't holiday or spend extravagently. I just sold one car.

    We have recently changed our massive credit card debit into a loan which was positive but I can see the debt continuing to grow. I stay home with our 3 kids. My husband has a good salary but we live in Ireland and everytime we cut back some more the government beats us to the punch and takes more away! I am getting more demoralised. I don't believe going back to work is the financial solution with a young family. It is such a frustrating time to live in. But we are determined to get out of debt. Perhaps it is just a matter of hanging in there and things will come right eventually. The main cause of our debt was buying our first house (a modest 3 bed semi 60km from my husbands work) at the height of the boom which has now lost half its value. I find your blog so inspiring and it really helps me keep focussed in these trying times! Rachel, Ireland

  20. We only use our credit card when necessary, for example when we buy airline tickets. From the beginning, my husband decided to pay the balance in full each month, so to say, if this month we spend 300 Euro on the card, that is what the bank will deduct from our account that month. This way, there are no interests charged and we are careful on what we use the card for, because we know that we will be short of that money very soon!!! I must say my husband is financially clever and that helps us so much in our saving challenge... We are now "attacking" our mortgage, hopefully we can make it happen!!!

  21. Hi Rhonda!

    The only reason I have a credit card is that is handy in some situations ... when travelling or when buying online. I have never used it to buy something with money that I don't have. I was raised after the principle that you can only spend as much money as you have and if you need or want something that you can't afford right now you need to save for it. When I wanted to move out of my parents' house I decided to take up a loan so that I was able to buy an apartment insted of rent it. I didn't like the idea of getting in dept, but on the long run it was the right decision. I didn't want to be dependent from rental prices that get higher every few years and I wanted to have the possibility do design and modify my home like I want to. The house where I grew up belonged to my parents, we could do with it what and when we wanted to do it, it was ours. If I had rented an apartment instead of buying it I couldn't really feel "at home", because it would belong so someone else. I wanted to possess my own home and be responsible for it.

    On the long run, it is better for me to pay off the loan instead of having to pay the monthly rent for the apartment. Right now I pay €412 per month to pay off the loan. If I had rented an apartment of the same kind the monthly rent would be at least €550. Real estate prices are monstrous in Austria, especially if you want to rent a home. A friend of mine, who lives in an area that is not as nice at my area and whose apartment is much, much smaller than mine, pays €73 more for his rent than I pay for my loan. And the best thing is, when I retire from work in many, many years, I'll have finished my loan and I won't have to pay a single cent for housing. Those are are reasons I was willing to get in dept.

    Greetings from Uschi in Austria!

  22. Just paid off everything but thr house in the last two years feeling free but still deciding what to do...looks like in a couple of years buying a few acers sale this way to big house and build our own little dream shack 55 retirement coming soon...

  23. Thanks for this great post. I'm always amazed at the ease with which people take out a loan or use their creditcard to buy a car, fridge or computer.

    I have a creditcard, which I only use for buying books online as it's often the only accepted payment method when buying abroad. This post however convinced me to quit my creditcard and sign up for a prepaid creditcard instead next time I want to make such a purchase - if that even happens. I hardly ever use my creditcard, but just having it cost me around 25 euro's a year.

  24. Thank goodness we decided years ago not to bother with credit cards. I have many family members struggling to pay off credit card debt right now so I will pass this on to them. Credit cards are such a trap.

  25. I am now debt free and it has really changed my life. If you are using credit cards, you are spending more than you make. It adds up very quickly and can swallow you. Once your debts are paid off, you start moving in the right direction. You use your emergency fund for repairs and unexpected expenses. You are no longer paying interest to anyone, so that is extra money that can go into savings. Back when I had SBA loans, I way paying a total of $200a month in interest payments. (car loan, credit cards, and business loans.) If you apply what you learn on this blog, your expenses shrink. It's all collective. I am so relieved to be able to live on so little now. I work like Rhonda and Hanno at home from early a.m. until dark, but I no longer worry or stress about paying my bills. I actually look forward to paying them, because the numbers are small, and the money is there, waiting. Being debt free makes you feel organized, responsible, and capable. All of the little things you do yourself add up and make it possible.


  26. I'm in much the same boat as Rachel from Ireland, but outside of Washington DC. We bought our condo at the height of the market (a 960 square foot two bedroom) when I was pregnant with our third child. Six and a half years later, we have paid off just enough to not be considered for homeowner assistance, but the outstanding loan is still 2x the value from our assessment. I make almost all our bread products, granola, yoghurt, and stay home to be there when the kids need me, but sometimes it's overwhelming to look at the amount of debt, including our debt (credit) card, versus our income. I made a chart in an Excel-type program that lists our total debt and our anticipated payments until the cards reach $0.00. We're about 2 years away now, after three years on this plan. As long as food and gas prices don't go up too much, I think we'll make it, but I'm worried that we're going to have to take a loss when we sell this condo.

  27. Great and relevant post as always Rhonda. I would only add that student debt was a good choice for me. It enabled me to study and prepare for a career that has provided well for me and my family. I am forever grateful to friends who convinced me to repay the debt as fast as I could after graduation. Literally, all my extra money went to pay off the debt and I was out of debt in 3 years. Since then, any credit card debt has been planned and usually paid for in the same month as the purchase. On occasion, such as a refrigertor, I would pay off the debt in two months.Now in my mid-50s, I can see the light of retirement. SJ in Vancouver BC

  28. I so agree with you. I told myself that this year, I will purchase only what I NEED, not what I WANT. I have done some backsliding, but not much. We are both retired, so our income is set and we have to be careful, which is incentive in itself!!

  29. Hello Rhonda
    A long time has gone by.

    A thought for those who now are left debt free except mortgage. Next step, While the interest rates are so low another way to save.
    We took our 30 year fixed mortgage turned it into a 15 year fixed. IT cost us $200. more a month that we we going to use against principle anyhow. Well in 15 years we will save $80,000 on the loan in interest. Now we had 25 years or so left on the old loan. Where could we earn such income on savings, but to force our-self to stop it from going out. WE lowered our interest rate 2% points and pd no finance for our refi had no costs. Remember if refi one must look at the costs to do so.
    HAVING to set $200 aside to principle is forced savings that simply became invisible. The fellow at the bank thought I was nuts to do so. Everyone else refi to gain extra cash in hand.
    No if by some grace we can add to principle we can shorten the load and interest even more.
    Humor for ya...someone even thought that they should feel sorry for us because we save or set aside in budget to buy shoes. It sounds like suffering to those who just grab a plastic card to satisfy every whim.
    Prioritize on budget and you will know just how nice a shoe you can honestly own. As apposed to wearing a pair that really belongs to the bank and not you.

  30. We recently went to the bank to try to consolidate our credit cards into a personal loan (we owe about $12,000) as i am 2 months pregnant and we really want to pay off our credit card debt before i go on maternity leave. Unfortunately the bank couldn't give us a loan as my husband has a small default in his and his ex-partners name which won't be cleared from his credit rating until 2014 and my salary alone wasn't enought to cover the personal loan and the mortgage which is solely in my name.
    Instead i got a balance transfer to a credit card that has a 0.99% for 12 months rate on transfers which will save us over $200 a month in interest which we can use for extra repayments and hopefully get the card paid off within the 12 month period. Once the 0.99% rate is over it will revert to 13.24% which is still alot lower than the rates i was paying before. It has been especially hard as my husband lost his full time job 16 months ago and has only been working 20 hours a week since with the occassional extra shift. Hoepfully he finds full time work before i stop working or i don't know what we'll do. I get paid maternity leave from my employer, 12 weeks at half pay plus 6 weeks annual leave that i'll take as half pay over 12 weeks plus the 18 weeks paid leave from the government which should keep us out of trouble for a year.

  31. This weekend, we have cut in pieces our 2 credit cards.

    I am sooo happy!!!

  32. Plastic Card is reliable and gives us lot of opportunities for business promotions.

  33. I am going through debt problems right now. I have started negotiating with the creditors. They seem to be pretty co-operative. I have started working overtime to earn few extra dollars. My total debt amount is $74,000 and I have already paid off $10,000. I do not to liquidate my retirement accounts right now. This is why I am trying hard to fetch money from other sources. If required, I will take out a small loan at a low interest from my friends. I will certainly pay off the debt with time. The new loan will solve my financial problems within this year. This is my financial goal in this year.


Comments with links or email addresses won't be published. All spam and business advertising will be deleted.

Children read my blog so I always make sure the information here is family-friendly. I don't publish comments containing links or email addresses now because I don't have time to check them.

All comments in English, please. Thank you.