Mozo guides

Managing your credit card balance

digital image of floating blue credit cards with high balances

When it comes to credit cards, we always think of that classic piece of advice: “Don’t spend beyond your means”. There’s a little more to it than that when it comes to managing your credit card balance, so buckle up! We’re diving in.

How should I use my credit card?

Ever heard a story about someone in way over their head with credit card debt and wondered how that happens? 

Say you get yourself a credit card with a modest $1,000 credit limit. You might think, “If I keep my spending controlled, I can manage the repayments on that.” Then one month you spend that little bit more than you can afford to repay, so interest begins to build. Maybe you haven’t got an automatic debit set up, so you end up paying a few late fees. The amount you owe just keeps building, more and more difficult to repay in full. Now, you owe far more than the value whatever you bought in the first place. It’s an easy trap to fall into!

If this sounds a little familiar, it might be time to put that credit card somewhere out of easy reach. It might be time to get your credit card balance under control, and work out a better plan for using your credit card.

It’s important not to spend more on your credit card than you can afford to pay off, even if it might be attractive for credit card rewards or impulse purchases. If you don’t have a payment plan in mind, it’s easy to end up deeper in debt - with your credit score taking a hefty hit.

Tips for managing your balance: dos and don’ts

Once you’ve decided to get a handle on your credit card balance, it’s all about having a plan. We’ve put together some dos and don’ts for staying on top of your credit card balance.

Do: Repay your debt as soon as possible, before the repayment date on your bills. If you leave things too long, you risk overspending and missing due dates. Don’t: Limit yourself to the minimum repayments. If you’re only paying back the minimum amount, you’re setting yourself up to be paying off debt for a long time - with a lot of interest. Making extra repayments along the way, or adding some extra to your repayments, can be a huge help in alleviating debt.
Do: Leave your credit card at home if you don’t need it. This isn’t always the most straightforward advice, as a lot of today’s shopping is online - or done via Buy Now, Pay Later. When it comes to those, the best method to avoid extra spend is to cut out unnecessary saving of your card details or fast payments. Don’t: Overspend. That way, it’s harder to find yourself in over your head. If your credit limit is $1,000 and you spend $300, you’re better off struggling to repay $300 than if you were struggling to repay $1,000.
Do: Make sure you’ve got the right card for you. If you’re trying to bring down an existing balance, a balance transfer card might offer a 0% introductory rate. If you need a card for spending, you might want to look for a low rate card or a card with no annual fee. Don’t: Use your credit card to withdraw cash. Not only will you get charged a high cash advance rate, but you’ll also start having interest charged on any cash withdrawals straight away.

What are the pros and cons of credit cards?

A credit card may or may not be the best method of payment for you, so it’s important to weigh up the positives and negatives of it as a payment option. Many of the positives and negatives cross over with other payment methods, so make sure to do your own research on debit cards, personal loans, and Buy Now Pay Later, as each can come with its own ups and downs.

Flexibility to buy goods and services when you need them, rather than needing to save for them.Risk of falling into a cycle of debt. If not managed, you could end up paying off more interest and fees than your initial purchases.
Near universal access. You can use a credit card wherever you go, as most major providers are accepted worldwide. You’ll still need to watch for foreign purchase fees for every transaction, and expect to be charged a currency exchange rate on top. If you are looking to pay for travel expenses, look at travel credit cards and prepaid travel cards.Happen to find yourself at a rare cash only venue? The cost of withdrawing cash from a credit card - the cash advance fee - can be exorbitant, often upwards of 20%, and incurs interest immediately.
Rewards credit cards can have higher fees attached, but it can be worthwhile to get points and bonuses for money you’re spending anyway. When it comes to things like cashback on your groceries, it could be a welcome addition to your wallet.Paying for features you aren’t using. Cards can run up major annual fees, but it’s important that you’re paying for things that are worthwhile to you. If you’re getting Frequent Flyer points but don’t plan on jet-setting, you’re doing yourself a disservice.

How to budget for credit card repayments

No sugarcoating here: budgeting isn’t fun, and it isn’t easy. Unless you take control of your debt, you can expect it to escalate. We’ve pulled together some tips to making your credit card repayments more manageable.

  • Pay more than the minimum repayment to get closer to a debt-free future faster.
  • Decide on a set amount from each paycheck to dedicate to your debt and set it aside as soon as your pay comes in.
  • Schedule automatic payments to avoid missing due dates and being charged late fees.
  • Try to make extra repayments where possible. After all, the faster you pay off your debt, the less interest you’ll need to pay. This can be helped by: selling clothes or furniture you no longer need, funnelling in any bonus payments (from work or gifts), cutting out unnecessary spend - and redirecting the money into card payments.

If you need extra help working out your repayments for your current credit card debt, use Mozo’s credit card debt repayments calculator.

What’s wrong with making the minimum payment?

We’ve talked a lot about going above and beyond the minimum repayment on your credit card. But why exactly making the minimum repayment a bad thing?

Consider a credit card debt of $700, with a minimum repayment of $35 per month. If your card’s purchase rate is 17%, it will take you 2 years to repay that debt - assuming you don’t charge any other transactions to your credit card in that time. You’ll pay $129 in interest on top of the $700 you originally owed.

Take that same debt of $700, but double those payments to $70 each month. With the same interest rate of 17%, you’ll pay off your debt in 11 months. You’ll pay only $60 in interest, less than half the amount you would have with those minimum repayments (and less than half the time to pay it off!)

All that said, if you’re struggling to make payments, the minimum is still something. Don’t beat yourself up for keeping it to those minimum payments while you get control of things - paying off anything is making great progress.

What is a balance transfer and can it help me?

There’s a lot to say about avoiding credit cards altogether, but the reality is that they can be extremely useful in this modern world. There are also smart ways to use credit cards when focusing on minimising debt and keeping your balance small.

If your debt is unusually high because of an unexpected circumstance or temporary setback, and you have a plan for your finances once you’ve paid it down, a balance transfer credit card can be a great way to help get debt to a manageable level.

Many balance transfer cards offer 0% introductory offers for a limited amount of months, potentially saving you a great deal. 

Imagine you have a $2,000 credit card balance on that same card with a 17% p.a. purchase rate. You are making monthly repayments of $100.

  • On a regular card, this means you will pay off your debt in roughly 2 years and accrue $368 in interest.
  • On a card with a 12 month 0% balance transfer offer, paid at the same rate, you’ll shave 3 months off your repayment. You’ll only end up paying $55 in interest, as the first year will be interest free. 
  • On this same card with 12 months of a 0% balance transfer offer, you can pay $0 interest if you pay off your debt within the 12 months. If you make payments of $167 a month, you’ll have paid off the whole credit card balance with 0% interest.

There are many reasons not to let debt spiral beyond control. Not only can it cause significant amounts of stress, but it can also impact your credit history and make it difficult for you to do things in the future, like buying a house or borrowing money.

If you’ve acquired some debt, you might also consider debt consolidation loans or how to help repair your credit score.

Compare credit cards with balance transfer offers - rates updated daily

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  • placeholder
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Sara Borman
Sara Borman
Money writer

Using her Bachelor of Communications in Writing, Sara has spent her professional career creating content and crafting copy. Her writing has been published in academic journals and literary anthologies in the US and Australia. She’s determined to make the world of finance accessible and loves finding a way to make money interesting to the everyday person.

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