The most expensive debt most people carry

Credit card debt is the most expensive debt most Australians carry. With interest rates typically 19–22%, a credit card balance costs more than almost any other form of borrowing — more than personal loans (8–15%), more than car loans (7–10%), and far more than a mortgage (5–7%).

Yet credit card debt is common. The average Australian credit card holder carries a balance of around $3,000–$4,000, and many carry balances across multiple cards. This guide covers how to pay off credit card debt specifically.

Why credit card debt is so hard to pay off

Credit card debt is designed to persist. Three features work against you:

1. Minimum payments are tiny

Minimum payments are usually 2–3% of the balance. On a $4,000 balance, the minimum is $80–$120/month. This feels manageable — but it's designed to keep you paying for years. At 20% interest, paying only the minimum on $4,000 takes over 5 years and costs about $2,300 in interest.

2. Interest is charged daily

Credit card interest is calculated daily and compounded. Every day you carry a balance, the interest is added to what you owe, and the next day's interest is calculated on the higher amount. This is why credit card debt grows faster than people expect.

3. Interest-free periods disappear

Most cards offer up to 44–55 days interest-free on purchases — but only if you pay the full balance each month. Once you carry a balance, you lose the interest-free period, and interest is charged from the day of purchase.

Step 1: Stop using the card

The first step to paying off credit card debt is to stop adding to it. This sounds obvious, but it's the step most people skip. You can't pay off a balance that keeps growing.

• Remove the card from your wallet and phone. Use a debit card for all spending.
• Unlink it from online accounts. Remove it from Amazon, Uber, food delivery apps, and any service that has it stored.
• Keep the account open. Don't cancel the card — closing it can affect your credit score. Just stop using it.

Step 2: Know your numbers

For each credit card, find:

• The current balance — check your app or latest statement
• The interest rate — the purchase rate, usually 19–22%
• The minimum payment — usually 2–3% of the balance
• Any promotional rates — some cards have a lower rate for a period

Example

| Card | Balance | Rate | Minimum | |---|---|---|---| | Card A | $4,200 | 19.99% | $84 | | Card B | $2,800 | 20.99% | $56 | | Total | $7,000 | | $140 |

Step 3: Choose your approach

Two main strategies for credit card debt:

The avalanche (highest rate first)

Pay minimums on both cards, then put all extra money toward the highest-rate card (Card B at 20.99%). Once Card B is paid off, redirect its payment to Card A.

Pros: Saves the most interest. Mathematically optimal. Cons: Card B's balance is smaller, so you might pay it off quickly anyway. The benefit of avalanche over snowball is smaller when balances are similar.

The snowball (smallest balance first)

Pay minimums on both cards, then put all extra money toward the smallest-balance card (Card B at $2,800). Once it's paid off, redirect its payment to Card A.

Pros: Quick win — Card B is gone faster, which is motivating. Cons: Slightly more interest than avalanche if the rates differ significantly.

For credit cards specifically, the difference between avalanche and snowball is often small because the rates are similar (all 19–22%). Choose based on what motivates you.

Step 4: Reduce the rate

Because credit card rates are so high, reducing the rate is the single most impactful step. Two options:

Balance transfer to a 0% card

Many Australian credit cards offer 0% or low-interest balance transfer periods of 12–24 months. Transferring $7,000 from 20% cards to a 0% card means:

• Before: $7,000 at 20% = $1,400/year in interest
• After: $7,000 at 0% = $0/year in interest
• Savings: $1,400/year, or $1,200–$2,400 over the promotional period

Every dollar you pay during the 0% period goes straight to principal, dramatically shortening the payoff timeline.

Rules:

• Pay it off before the promotional period ends. After the 0% period, the rate reverts to 20%+.
• Don't use the new card for purchases. The 0% rate usually applies only to the transferred balance; purchases are charged at the standard rate.
• Watch for fees. Balance transfer fees are typically 1–2% of the transferred amount. Even with a fee, you'll usually save far more in interest.
• Don't close the old cards immediately. Closing cards can affect your credit score. Once the balance is transferred, you can close them — but keep the oldest card open if it has no annual fee, as it helps your credit history length.

Debt consolidation personal loan

A personal loan at 10–12% can pay off credit card debt at 20%+. You get:

• A lower interest rate
• A fixed monthly payment
• A defined payoff timeline (usually 3–5 years)

Rules:

• Compare the total cost (interest + fees) of the loan vs. continuing to pay the cards.
• Don't consolidate and then run up the credit cards again. This is the biggest risk — you end up with the consolidation loan AND new credit card debt.

Step 5: Set a payment amount

Decide how much you can put toward credit card debt each month. The more, the faster — but be realistic.

Example: $7,000 at 20%, paying $300/month

• Minimum payments only ($140): 5+ years, $4,000+ in interest
• $300/month: 2.5 years, about $1,900 in interest
• $500/month: 1.4 years, about $1,000 in interest
• $700/month: 1 year, about $700 in interest

The jump from minimum to $300/month cuts the timeline in half and saves $2,000+ in interest. Use the free payday calculator to see how much you can afford to put toward debt.

Where to find the extra money

• Spending cuts. Reduce dining out, subscriptions, non-essential shopping. See our guide to auditing subscriptions.
• Bill reductions. Negotiate insurance, phone, internet. See our guide to managing household bills.
• Side income. Freelancing, casual work, selling items.
• Tax return. Put your entire refund toward the debt.

Step 6: Build a small emergency fund first

Before aggressively paying off credit card debt, build a small emergency fund — $500–$1,000. Without it, every unexpected expense (car repair, medical bill, vet visit) goes back on the credit card, undoing your progress.

This seems counterintuitive — why save at 2% when debt costs 20%? — but the psychological and practical benefit is real: a small buffer prevents the cycle of pay-off-and-recharge that keeps people in credit card debt for years.

Once the emergency fund is in place, put everything extra toward the debt.

Step 7: Automate the payment

Set up an automatic payment for your chosen monthly amount, timed for just after payday. If the payment is automatic, it happens. If you have to decide each month, you'll find reasons not to.

If you've done a balance transfer, set up the automatic payment to the new card. If you're paying cards directly, set up automatic payments above the minimum for each card.

Step 8: Stay out of debt

Once the credit card debt is paid off, the goal is to never carry a balance again:

• Pay the full balance each month. Set up automatic payment of the full statement balance, not the minimum.
• Keep using a debit card for everyday spending. Use the credit card only for specific purposes (online purchases, travel, rewards if you pay in full) and pay it off immediately.
• Keep the emergency fund. The buffer that prevented you from reaching for the card during debt payoff is the same buffer that keeps you out of debt going forward.

Summary

Credit card debt is expensive because of high rates, small minimum payments, and daily compounding. To pay it off: stop using the card, know your numbers, choose a strategy, reduce the rate with a balance transfer or consolidation loan, set a payment amount you can sustain, build a small emergency fund first, automate the payment, and commit to never carrying a balance again. The key is a payment amount above the minimum — even $200–$300/month instead of the minimum can cut years and thousands of dollars off your debt.

To track your credit card debt payoff alongside your full financial picture, try the Payday Compass Money Runway.