What to do if your credit card debt is starting to feel overwhelming

Whitney Restall got her first credit card just a few months after finishing high school.

"I never prioritised paying it off … I'd max it out and then the bank would be like, 'Oh, would you like to increase your limit by another thousand dollars?' And then I'd max it out again," she says.

Whitney, who lives in Wagga Wagga, NSW, on Wiradjuri land, and only paid the minimum repayments for years, is far from alone.

Credit card debt was the third most common reason for calls to the National Debt Helpline (NDH) last financial year, and the second most common reason for seeking help via chat.

With the cost of living continuing to rise, what steps can you take if your credit card is starting to feel like a problem?

First, get clear on your spending

NDH coordinator Vicki Staff, from Brisbane/Meanjin, says you need to get on top of your financial situation by creating a basic budget.

This means looking back over your bank statements, noting your income and what you are spending your money on.

"It's only once you've got that real clarity around what it costs to live that you can come up with an amount that you might be able to offer to a credit card provider," she says.

If you're not quite sure where to start, Moneysmart.gov.au has a free budget planner.

Associate professor Kirsten MacDonald, from Griffith University's Department of Accounting, Finance and Economics, on the Gold Coast/Kombumerri land, recommends examining your spending habits with a critical lens.

"What are you actually buying on the credit card? Is that a want or a need?" she says.

"Find out what you have got that's extra and perhaps cut back on some discretionary spending."

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Financial hardship and revolving credit card debt

The next step is to assess what level of help you need with paying off your debt.

If you're experiencing financial hardship, you have a legal right to ask credit providers to change their loan terms.

The definition of "financial hardship" is quite broad, and includes situations like poor health, a recent job loss, or being hit with unexpected expenses.

But Dr MacDonald says people who struggle with credit card debt aren't always enduring financial hardship.

They may instead experience what she calls "revolving credit card debt", where money does get paid off a card, but the debt mounts again and the cycle continues.

"People who have more money might not be in hardship … but they could certainly still have cashflow difficulties or just be spending a whole lot more on credit cards than they need to," Dr MacDonald says.

This was Whitney's reality for almost 10 years.

"I've had my debt since the first two weeks of my full-time job out of high school in 2015," she says.

"That was just life to me … and, I'm sure, a lot of other younger people out there."

Here's how to get back on track

If you're not experiencing financial hardship but you need some extra strategies to help pay off your debt, Moneysmart recommends checking your card's interest rate and looking for a lower option.

If you're paying a high interest rate, Moneysmart suggests doing a balance transfer to a card with a lower interest rate or a zero-interest period, or transferring your debt to a personal loan with a lower interest rate.

However, Dr MacDonald says it's important to pay careful attention to fees and conditions.

Sometimes you can end up paying a higher rate for balance transfers with a promotional period if you don't pay off your card in time or miss a minimum monthly payment, according to Moneysmart.

If you need to pay off multiple credit cards, or have other forms of debt such as a loan, debt consolidation is worth considering, Dr MacDonald says.

"Can we combine the credit cards, or have we got a credit card and another type of loan that has the potential to actually combine it?" she says.

"For some people, they would be best to go and talk to their bank and see whether or not they can combine some of their personal loans or credit cards with their mortgage."

If you are considering this option, Ms Staff says it's important to crunch the numbers first or get some advice.

"When you consolidate all of your debts into one loan, it might have a lower interest rate, but it may still cost you more over time because it's going to take you longer to pay off," she says.

To avoid adding more debt to your card, Ms Staff suggests cutting up your card or lowering your credit limit as you pay it off.

"If you want to keep your credit card but you don't want to get too far into trouble if something happens again … there are low-cost credit cards out there with lower limits, lower interest amounts, lower annual fees," she says.

And if you still need help, Ms Staff recommends calling your bank and asking to speak with their hardship department.

"You might even be able to ask for what we call a repayment holiday," she says.

If your bank isn't willing to make an agreement you think is fair, you can lodge a complaint with them, Ms Staff says, and failing that, appeal to the Australian Financial Complaints Authority.

You can also get advice and talk to a financial counsellor by contacting the National Debt Helpline.

Proving it is possible to pay off an overwhelming credit card debt, Whitney decided to knuckle down to pay off her card about two years ago.

She made a basic budget, cut back on unnecessary expenses, and put 10 per cent of her pay into an emergency fund.

It took her about six months to bring the balance down to zero, and she has now cut the card in half and cancelled the account.