Stopping all stations to credit card debt

February 16th, 2012

Ever been bogged down with credit card debt?

So bogged that you can’t see a light at the end of the tunnel?

A debt tunnel so dark, long and windy that light can’t possibly get to you.

You’re not alone.

When you jump on the credit card train, life seems dandy at first. The view is great, the seats are comfortable and the snack trolley serves champagne. Why was everyone warning you about this glorious adventure? The credit card train pulls up at a station and a few cautious folk jump off. You see the most magnificent mountain on the horizon and decide to stay on. As you approach the mountain, you see wild baby goats grazing on its peak and a running stream glistening in the sunlight. You’ve always wanted to explore the countryside like this.

A crackle in the intercom interrupts your exploring eyes, “We will shortly be entering inside a world-famous tunnel. It takes approximately 3 years to travel through it and some never come out. Brace yourself.” Before you can digest what the train driver has just said, you’re inside the dark tunnel. The lights start to flicker, a funny smell creeps into the cabin and the train speeds up. Eventually it’s completely dark and the champagne now tastes like Passion Pop.

“OUCH!”, you’ve just been catapulted into the person sitting opposite you. The train has stopped. “Dear passengers, you are now in the Tunnel of Debt. We will be coming around to collect payments once a month. The only way out is by foot. With no light, this is a very difficult journey. We recommend making yourself at home on the train and paying the minimum monthly payments. The snack trolley will be coming around shortly and has an excellent selection of beans and 2-minute noodles.”

A few surprising facts about credit card debt:

  • The average credit card debt per consumer is $3,333 as at Nov, 2011.
  • 15 million credit cards in circulation in Australia as at Nov, 2011 (there are just over 22 million living in Australia).
  • The Reserve Bank of Australia “figures show mortgage, credit card and personal loan debts now stand at $1.2 trillion, up 71 per cent from just five years ago and equating to $56,000 for every man, woman and child in the country” (Source: Sydney Morning Herald, December 2009).

The warning signs: Are you on the best train ride of your life?

Are you leading a carefree-spending life? Be careful when introducing a credit card into your wallet. There are some great benefits like interest free periods, having the ability to buy things 24/7 and collecting reward points – but it all comes with temptation to spend money you don’t have. Beware of the warning signs. If you recognise any of the following, it might be time to jump off at the next stop:

  • Excessive, out of control or unnecessary purchases
  • Making a purchase gives you a rush
  • You hide or throw away your receipts
  • You purchase and take back items out of guilt
  • You go over your budget with an “I’ll sort it out later” attitude
  • Your spending habits are impairing your close relationships
  • You shop when you’re in a bad mood to make you feel better
  • You own things you’ve never used or worn
  • You don’t keep track of your spending… do you know what your balance is right now?

Have you already entered the debt tunnel?

  • Do you rely solely on credit?
  • Do you only make minimum repayments?
  • Do you hide your credit card bill from your spouse?
  • Never have cash in your wallet?
  • Do you have more than two ‘branded’ or store credit cards?
  • When your cards max out, instead of paying it off, you open a new account…

If you answered ‘yes’ to any of the questions above, it might be a good time to get a move on out of that debt tunnel.

How do I get to the end of the tunnel, asap?

There are a number of ways that improve your situation. If you’re completely reliant on your credit card, there are ways to wean yourself off it. Here are 10 ways to help you get back on track:

  1. Use cash. Using cash forces you to be more aware of how much you’re spending as you have to frequently withdraw the money.
  2. Freeze your cards… in a glass of water in the freezer. If you suffer from ‘impulse splurges’, this is a good way to break that habit. It will give you the time you need to think through each purchase.
  3. Create a budget. Draw up a plan, set your goals and only spend what you have set aside for ‘spending’. There are a number of free resources online.
  4. Track your expenses. Write down everything you spend so you are keeping a constant eye on it.
  5. Make a shopping list before you go out – and stick to it. Challenge yourself to only buy what is on the list.
  6. Get rid of all your cards, except for one – for emergencies. Consolidate your debt and reduce your cards to just one.
  7. Leave your wallet at home once a week. Try and foresee each opportunity that may require you to spend money and plan for it. Take a packed lunch and ride your bike to work.
  8. Find a go-to activity when you get the urge to shop. Go for a walk or a run, call a friend, do something crafty, bake a cake etc.
  9. Cut your expenses. Buy in bulk, cook and freeze meals, reduce transportation costs, find a cheaper alternative for everything. See if you can reduce your phone plan, refinance your mortgage, find a cheaper hairdresser, cancel your Foxtel bill, stop paying for parking and stop buying drinks when you’re out and about (pack a water-bottle).
  10. Look for another stream of income. Can you mow lawns on a Saturday? Babysit on a Friday night? Sell something at the markets? Teach English?

You may feel like there’s no hope or that you don’t even know where to start. Draw up a plan, set yourself 3 goals and get ready to put in the hard yards. You have to trust that there is light at the end of the tunnel. If you keep moving forward, you’ll see it as you approach the last few bends.